As filed with the Securities and Exchange Commission on August 2, 1999
Securities Act File No. 333-49831
Investment Company Act File No. 811-08745
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [X]
(Check appropriate box or boxes.)
SCM INVESTMENT TRUST
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(Exact Name of Registrant as Specified in Charter)
105 North Washington Street, P.O. Box 69, Rocky Mount, NC 27802-0069
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (252) 972-9922
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C. Frank Watson, III
105 North Washington Street, P.O. Box 69, Rocky Mount, NC 27802-0069
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(Name and Address of Agent for Service)
With copies to:
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Jane A. Kanter
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006-2401
Approximate Date of Proposed Public Offering: As soon as practicable
after the Effective Date
of this Amendment
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It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
SCM INVESTMENT TRUST
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
SCM Strategic Growth Fund
-Part A - Prospectus
-Part B - Statement of Additional Information
Part C - Other Information and Signature Page
Exhibit Index
Exhibits
<PAGE>
PART A
======
Cusip Number 809121106 NASDAQ Ticker SCMGX
________________________________________________________________________________
SCM STRATEGIC GROWTH FUND
A series of the
SCM Investment Trust
________________________________________________________________________________
PROSPECTUS
September 30, 1999
The SCM Strategic Growth Fund seeks maximum total return consisting of any
combination of realized and unrealized capital appreciation. Current income will
be of secondary importance.
Advisor
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Shanklin Capital Management, Inc.
1420 Osborne Street, Suite B16
Humboldt, Tennessee 38343
1-800-525-3863
www.scmfunds.com
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
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TABLE OF CONTENTS
Page
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THE FUND.......................................................................2
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Investment Objective.....................................................2
Principal Investment Strategies..........................................2
Principal Risks Of Investing In The Fund.................................4
Performance Information..................................................5
Fees And Expenses Of The Fund............................................6
MANAGEMENT OF THE FUND.........................................................7
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The Investment Advisor...................................................7
The Administrator........................................................8
The Transfer Agent.......................................................8
The Distributor..........................................................8
INVESTING IN THE FUND..........................................................8
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Minimum Investment.......................................................8
Purchase And Redemption Price............................................9
Purchasing Shares........................................................9
Redeeming Your Shares...................................................10
OTHER IMPORTANT INVESTMENT INFORMATION........................................12
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Dividends, Distributions And Taxes......................................12
Year 2000...............................................................13
Financial Highlights....................................................13
Additional Information..........................................Back Cover
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THE FUND
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INVESTMENT OBJECTIVE
The SCM Strategic Growth Fund (the "Fund") seeks maximum total return consisting
of any combination of realized and unrealized capital appreciation. Current
income will be of secondary importance.
PRINCIPAL IVESTMENT STRATEGIES
The Fund will seek to achieve its objective by investing primarily in a flexible
portfolio of the following asset classes:
o equity securities
o fixed income securities
o money market instruments
Shanklin Capital Management, Inc. ("Advisor") will vary the percentage of Fund
assets invested in equities, fixed income securities, and money market
instruments according to the Advisor's judgment of market and economic
conditions, and based on the Advisor's view of which asset class can best
achieve the Fund's objectives. Under normal market conditions the portfolio
allocation range for the Fund will generally be:
% of Total Assets
-----------------
Equity securities 65 - 95%
Fixed income securities and
Money market instruments 5 - 35%
Equity securities will be selected for investment based primarily on the
expected capital appreciation potential. Fixed income securities will be
selected for investment based primarily on their income potential. The capital
appreciation potential of those fixed income securities is of secondary
importance.
Under certain conditions, the Advisor may choose for temporary or defensive
purposes to invest up to 100% of the Fund's assets in cash and cash equivalents,
investment grade bonds, U.S. Government Securities, repurchase agreements, or
money market instruments, when the Advisor determines that market conditions
warrant such investments. When the Fund invests in these investments as a
temporary or defensive measure, it is not pursuing its stated investment
objective.
The Advisor will continually review the macroeconomic environment and
alternative expected rates of return between fixed income securities and equity
securities in determining the asset allocation of the Fund between those asset
classes. The analytical process used by the Advisor in making asset allocation
decisions is based upon a combination of:
o demonstrated historic financial results,
o current prices for stocks, and
o current yield to maturity available in the market for bonds.
The potential return available from one asset class relative to the other will
dictate the amount of the Fund's assets that are allocated to a particular asset
class. The Advisor's asset allocation process is systematic and is based on
current information rather than forecasted changes.
2
<PAGE>
Equity Securities
The equity portion of the Fund's portfolio will be generally comprised of common
stocks and, to a lesser extent, securities convertible into common stocks. Such
securities generally will be issued by companies which are listed on a national
securities exchange and which usually pay regular dividends. The Fund also may
invest in securities traded on regional stock exchanges or on the
over-the-counter market. Investment in foreign equity securities will be limited
to those available on domestic U.S. exchanges and denominated in U.S. dollars.
The Fund has not established any minimum investment standards, such as an
issuer's market capitalization, earnings history, type of industry, dividend
payment history, etc. with respect to investments in common stocks. In selecting
common stocks, however, the Advisor generally applies an investment discipline
that seeks to achieve a yield higher than the overall equity market. This often
results in the selection of securities of companies that would be considered
small to medium sized in terms of market capitalizations.
The Advisor seeks to invest in equity securities of companies that exhibit the
following characteristics:
o a strong financial position, as measured not only by balance sheet data but
also measured by off-balance sheet liabilities and contingencies;
o responsible management and control groups, as gauged by managerial competence
as operators and investors as well as by an apparent absence of intent to
profit at the expense of stockholders; and
o provide comprehensive and meaningful financial statements and related
information that enables the Advisor to more easily track its operations, its
values and its dynamics.
While equity securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
o the anticipated price appreciation has been achieved or is no longer
probable;
o alternative investments offer superior total return prospects; or
o fundamentals change adversely.
Fixed Income Securities
The Advisor is considered a "core" bond manager and generally allocates 100% of
the fixed income portion of the Fund to "duration" strategies using U.S.
Treasury securities. Duration is a measure of the weighted average maturity of
the fixed-income instruments held by the Fund and can be used by the Advisor as
a measure of the sensitivity of the market value of the Fund to changes in
interest rates. Generally, the longer the duration of the Fund, the more
sensitive its market value will be to changes in interest rates. Occasionally,
fixed income securities are selected based upon investment analysis by the
Advisor, attempting to identify securities that are undervalued. Fixed income
securities are identified as undervalued in circumstances, for instance, where
the Advisor believes the credit rating of the company is subject to an increase,
which has the potential to reduce the price spread to a comparable maturity U.S.
Treasury security, and in turn increase in price. Fixed income securities may
also be identified as undervalued if the spread for a particular security is too
large relative to similar fixed income securities within similar maturities and
similar credit quality. The strategy of occasionally investing in undervalued
fixed income securities may result, if successful, in a larger component of
total return being the result of capital gains than may be typical for fixed
income investment strategies.
In structuring the fixed income portion of the Fund, the Advisor examines spread
relationships between quality grades in determining the quality distribution,
and assesses the expected trends in inflation and interest rates in structuring
the maturity distribution. Not more than 50% of the total fixed income portion
of the portfolio (not more than 15% of the Fund's assets) will be invested in
fixed income securities rated below BBB or Baa by a nationally recognized
statistical rating organization (or if not rated, deemed by the Advisor to be of
equivalent quality). Securities rated below these ratings (or comparable unrated
securities) are commonly called "junk bonds" and are considered speculative.
3
<PAGE>
Money Market Instruments
Money market instruments will typically represent a portion of the Fund's
portfolio, as funds awaiting investment, to accumulate cash for anticipated
purchases of portfolio securities, and to provide for shareholder redemptions
and operating expenses of the Fund.
Please see "Other Investment Policies" in the Statement of Additional
Information ("SAI") for a more complete discussion of these securities and other
investment options in addition to those mentioned above.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, including the possible
loss of the principal amount invested, and there can be assurance that the Fund
will be successful in meeting its objective. Generally, the Fund will be subject
to the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Fund's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Fund
may be subject to credit risk to the extent that it invests in debt
securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Fund.
Credit risk is particularly significant to the Fund when investing a
portion of its assets in "junk bonds" or "lower-rated securities."
o Interest Rate Risk: The price of a fixed income security is dependent upon
interest rates. Therefore, the share price and total return of the Fund,
when investing a significant portion of its assets in fixed income
securities, will vary in response to changes in interest rates. A rise in
interest rates causes the value of fixed income securities to decrease, and
vice versa. There is the possibility that the value of the Fund's
investment in fixed income securities may fall because fixed income
securities generally fall in value when interest rates rise. Changes in
interest rates may have a significant effect on the Fund holding a
significant portion of its assets in fixed income securities with long term
maturities.
o Maturity Risk: Maturity risk is another factor that can effect the value of
the Fund's debt holdings. In general, the longer the maturity of a fixed
income instrument, the higher its yield and the greater its sensitivity to
changes in interest rates. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability.
o Small Sized Companies: Investing in the securities of smaller sized
companies generally involves substantially greater risk than investing in
larger, more established companies. This greater risk is, in part,
attributable to the fact that the securities of small size companies
usually have more limited marketability and, therefore, may be more
volatile than securities of larger, more established companies or the
market averages in general. Because small sized companies normally have
fewer shares outstanding than larger companies, it may be more difficult to
buy or sell significant amounts of such shares without an unfavorable
impact on prevailing prices. Another risk factor is that small sized
companies often have limited product lines, markets, or financial resources
and may lack management depth. Additionally, small sized companies are
typically subject to greater changes in earnings and business prospects
than are larger, more established companies. Small sized companies may not
be well-known to the investing public, may not be followed by the financial
press or industry analysts, and may not have institutional ownership. Small
sized companies may be more vulnerable than larger companies to adverse
business or economic developments.
4
<PAGE>
Although investing in securities of small sized companies offers potential
above-average returns if the companies are successful, the risk exists that
the companies will not succeed, and the prices of the companies' shares
could dramatically decline in value. Therefore, an investment in the Fund
may involve a substantially greater degree of risk than an investment in
other mutual funds that seek capital growth by investing in more
established, larger companies.
o Investment-Grade Securities Risk: Fixed income securities are rated by
national bond ratings agencies. Fixed income securities rated "BBB" by
Standard & Poor's or "Baa" by Moody's are considered investment grade
securities, but are somewhat riskier than higher rated investment-grade
obligations because they are regarded as having only an adequate capacity
to pay principal and interest, and are considered to lack outstanding
investment characteristics and may be speculative.
o Junk Bonds or Lower-rated Securities Risk: Fixed income securities rated
below "BBB" and "Baa" by S&P or Moody's, respectively, are speculative in
nature and may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than higher rate fixed-income
securities. They are usually issued by companies without long track records
of sales and earnings, or by those companies with questionable credit
strength. These fixed income securities are considered "below investment
grade." The retail secondary market for these "junk bonds" may be less
liquid than that of higher rated securities and adverse conditions could
make it difficult at times to sell certain securities or could result in
lower prices than those used in calculating the Fund's net asset value.
o Short-Term Investments. As a temporary defensive position, the Advisor may
determine that market conditions warrant investing in investment-grade
bonds, U.S. Government Securities, repurchase agreements, money market
instruments, and to the extent permitted by applicable law and the Fund's
investment restriction, shares of other investment companies. Under such
circumstances, the Advisor may invest up to 100% of the Fund's assets in
these investments. Since investment companies investing in other investment
companies pay management fees and other expenses relating to those
investment companies, shareholders of the Fund would indirectly pay both
the Fund's expenses and the expenses relating to those other investment
companies with respect to the Fund's assets invested in such investment
companies. To the extent the Fund is invested in short-term investments, it
will not be pursuing its investment objective.
o Advisor Experience. The Fund, organized in 1998, has no prior operating
history. The assets of the Fund are managed by the Advisor, a Tennessee
corporation established in 1993. While the Advisor has no previous
experience managing a mutual fund, it has been rendering investment
counsel, utilizing investment strategies similar to that of the Fund, to
other individuals, pension and profit sharing plans, trusts, and
corporations since its formation.
PERFORMANCE INFORMATION
Because the Fund did not commence operations until June 29, 1998, there are no
calendar year returns for the Fund to be presented. However, performance and
financial information for the fiscal period ended May 31, 1999, is included in
the "Financial Highlights" section of this Prospectus.
5
<PAGE>
FEES AND EXPENSES OF THE FUND
These tables below describe the fees and expenses that you may pay if you buy
and hold shares of the Fund:
Shareholder Fees
(fees paid directly from your investment)
-----------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) ............................None
Redemption fee .....................................................None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees.............................................0.85%
Distribution and/or Service (12b-1) Fees....................None
Other Expenses..............................................1.83%
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Total Annual Fund Operating Expenses............................2.68%*
Fee Waivers and/or Expense Reimbursement.......................(1.43)%
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Net Expenses....................................................1.25%
====
* "Total Annual Fund Operating Expenses" are based upon actual expenses
incurred by the Fund for the fiscal period ended May 31, 1999. The
Advisor has entered into a contractual agreement with the Trust under
which it has agreed to waive or reduce its fees and to assume other
expenses of the Fund, if necessary, in an amount that limits the "Total
Annual Fund Operating Expenses" (exclusive of interest, taxes, brokerage
fees and commissions, extraordinary expenses, and payments, if any,
under a Rule 12b-1 Plan) to not more than 1.25% of the average daily net
asset of the Fund for the fiscal year ending May 31, 2000. See "Expense
Limitation Agreement" for more detailed information.
Example: This Example shows you the expenses you may pay over time by investing
in the Fund. Since all funds use the same hypothetical conditions, it should
help you compare the costs of investing in the Fund versus other funds. The
Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above as well as those upon
redemption.
- ---------------------- ------------- -------------- ------------- --------------
1 Year 3 Years 5 Years 10 Years
- ---------------------- ------------- -------------- ------------- --------------
Your Costs $127 $832 $1,420 $3,012
- ---------------------- ------------- -------------- ------------- --------------
6
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MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
Subject to the authority of the Board of Trustees, Shanklin Capital Management,
1420 Osborne Street, Suite B16, Humboldt, Tennessee 38343, provides the Fund
with a continuous program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and recommendations with
respect to investments, investment policies and the purchase and sale of
securities pursuant to an Investment Advisory Agreement with the Trust (the
"Advisory Agreement").
The Advisor is registered under the Investment Advisers Act of 1940, as amended.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission
("SEC"). The Advisor was established as a Tennessee corporation in 1993 and is
controlled by Tim L. Shanklin and Dan P. Shanklin. Both serve as Trustees of the
Trust. The Advisor currently has approximately $12 million in assets under
management and has been rendering investment counsel, utilizing investment
strategies similar to that of the Fund, to other individuals, pension and profit
sharing plans, trusts, and corporations since its formation.
Mr. Tim L. Shanklin, the Fund's portfolio manager, is responsible for the
day-to-day investment management of the Fund. Mr. Shanklin has in excess of
eight years of experience in the financial services industry, including
approximately two years as a Registered Representative in the brokerage
business, another two years as a financial analyst for a government entity, and,
most recently, four years as Principal of another registered investment advisory
firm. Mr. Shanklin has been with the Advisor since its formation.
The Advisor's Compensation. Compensation of the Advisor with regard to the Fund,
is at the annual rate of 0.85% of the Fund's daily average net assets. For the
fiscal period ending May 31, 1999, the Advisor voluntarily waived $34,231 of its
advisory fee. As a result, the amount of compensation received by the Advisor as
a percentage of assets of the Fund during this fiscal period, was 0.05% of the
Fund's daily average net assets.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
the Advisor has entered into an expense limitation agreement with the Trust,
with respect to the Fund (the "Expense Limitation Agreement"), pursuant to which
the Advisor has agreed to waive or limit its fees and to assume other expenses
so that the total annual operating expenses of the Fund (other than interest,
taxes, brokerage commissions, other expenditures which are capitalized in
accordance with generally accepted accounting principles, other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
amounts, if any, payable pursuant to a Rule 12b-1 Plan) are limited to 1.25% of
the average net assets of the Fund for the fiscal year to end May 31, 2000.
The Fund may at a later date reimburse the Advisor the fees waived or limited
and other expenses assumed and paid by the Advisor pursuant to the Expense
Limitation Agreement, provided the Fund has reached a sufficient asset size to
permit such reimbursement to be made without causing the total annual expense
ratio of the Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $20
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
Brokerage Practices. In selecting brokers and dealers to execute portfolio
transactions, the Advisor may consider research and brokerage services furnished
to the Advisor or its affiliates. Subject to seeking the most favorable net
price and execution available, the Advisor may also consider sales of shares of
the Fund as a factor in the selection of brokers and dealers.
7
<PAGE>
THE ADMINISTRATOR
The Nottingham Company, Inc. (the "Administrator") serves as the administrator
and fund accounting agent for the Fund. The Administrator assists the Advisor in
the performance of its administrative responsibilities to the Fund, coordinates
the services of each vendor of services to the Fund, and provides the Fund with
other necessary administrative, fund accounting and compliance services. In
addition, the Administrator makes available the office space, equipment,
personnel and facilities required to provide such services to the Fund. For
these services, the Administrator is compensated by the Trust pursuant to a Fund
Accounting and Compliance Administration Agreement.
THE TRANSFER AGENT
NC Shareholder Services, LLC (the "Transfer Agent") serves as the Fund's
transfer, dividend paying, and shareholder servicing agent. As indicated later
in the section of this Prospectus, "Investing in the Fund," the Transfer Agent
will handle your orders to purchase and redeem shares of the Fund, and will
disburse dividends paid by the Fund. The Transfer Agent is compensated for its
services by the Trust pursuant to a Dividend Disbursing and Transfer Agent
Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. ("Distributor") serves as the distributor of the
Fund's shares. The Distributor may sell such shares to or through qualified
securities dealers or others.
Other Expenses. In addition to the advisory fees, the Fund pays all expenses not
assumed by the Fund's Advisor, including, without limitation: the fees and
expenses of its administrator, custodian, transfer and dividend disbursing agent
independent accountants and legal counsel; the costs of printing and mailing to
shareholders annual and semi-annual reports, proxy statements, prospectuses,
statements of additional information and supplements thereto; the costs of
printing registration statements; bank transaction charges and custodian's fees;
any proxy solicitors' fees and expenses; filing fees; any federal, state or
local income or other taxes; any interest; any membership fees of the Investment
Company Institute and similar organizations; fidelity bond and Trustees'
liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Fund, on a basis that the Trustees
deem fair and equitable, which may be on the basis of the relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
INVESTING IN THE FUND
---------------------
MINIMUM INVESTMENT
Shares of the Fund are sold and redeemed at net asset value. Shares may be
purchased by any account managed by the Advisor and any other broker-dealer
authorized to sell shares in the Fund. The minimum initial investment is $2,000
($100 for those participating in the Automatic Investment Plan). The minimum
additional investment is $500 ($50 for those participating in the Automatic
Investment Plan). The Fund may, in the Advisor's sole discretion, accept certain
accounts with less than the minimum investment.
8
<PAGE>
PURCHASE AND REDEMPITION PRICE
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. An order is considered to be in good form if it
includes a complete and accurate application and payment in full of the purchase
amount. The Fund's net asset value per share is calculated by dividing the value
of the Fund's total assets, less liabilities (including Fund expenses, which are
accrued daily), by the total number of outstanding shares of that Fund. The net
asset value per share of the Fund is normally determined at the time regular
trading closes on the New York Stock Exchange (currently 4:00 p.m. Eastern time,
Monday through Friday), except on business holidays when the New York Stock
Exchange ("NYSE") is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees of the Trust.
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for the Fund. All redemption requests
will be processed and payment with respect thereto will normally be made within
seven days after the redemption order is received. The Fund may suspend
redemptions, if permitted by the Investment Company Act of 1940, as amended
("1940 Act"), for any period during which the NYSE is closed or during which
trading is restricted by the SEC or if the SEC declares that an emergency
exists. Redemptions may also be suspended during other periods permitted by the
SEC for the protection of the Fund's shareholders. Additionally, during drastic
economic and market changes, telephone redemption privileges may be difficult to
implement. Also, if the Trustees determine that it would be detrimental to the
best interest of the Fund's remaining shareholders to make payment in cash, the
Fund may pay redemption proceeds in whole or in part by a distribution-in-kind
of readily marketable securities.
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "SCM
Strategic Growth Fund," to:
SCM Strategic Growth Fund
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
The application must contain your social security number or Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but you have not
received your number, please indicate this on the application. Taxes are not
withheld from distributions to U.S. investors if certain IRS requirements
regarding the TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-800-773-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the SCM Strategic Growth Fund
Acct. # 2000001292831
For further credit to (shareholder's name and SS# or TIN#)
9
<PAGE>
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current net asset value. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-800-773-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your Fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-773-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
fund will automatically charge the checking account for the amount specified
($50 minimum), which will be automatically invested in shares at the net asset
value on or about the 21st day of the month. The shareholder may change the
amount of the investment or discontinue the plan at any time by writing to the
Fund. Investors who establish an Automatic Investment Plan may open an account
with a minimum balance of $100. This Automatic Investment Plan must be
established on your account at least fifteen (15) days prior to the intended
date of your first automatic investment.
Limitations on Frequent Trading. A pattern of frequent purchase and redemption
transactions is considered by the Advisor to not be in the best interest of the
shareholders of the Fund. Such a pattern may, at the discretion of the Advisor,
be limited by the Fund's refusal to accept further purchase and/or exchange
orders from an investor, after providing the investor with 60-days' prior
notice.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
SCM Strategic Growth Fund
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
10
<PAGE>
Regular mail redemption request should include:
1) Your letter of instruction specifying the account number and number of
shares, or the dollar amount, to be redeemed. This request must be signed
by all registered shareholders in the exact names in which they are
registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within seven (7) days
after receipt of your redemption request. However, the Fund may delay forwarding
a redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to fifteen (15)
days from the date of purchase) may be reduced or avoided if the purchase is
made by certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
1) Designation of Fund's name,
2) Shareholder names and account number,
3) Number of shares or dollar amount to be redeemed,
4) Instructions for transmittal of redemption funds to the shareholder,
and
5) Shareholder signature as it appears on the application then on file
with the Fund.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. See "Signature Guarantees" below.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-773-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
11
<PAGE>
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$5,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Share Application form.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 90-day period, the lesser of (a) $250,000 or (b) one
percent (1%) of the Fund's net asset value at the beginning of such period.
Signature Guarantees. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
change in registration or standing instructions for your account. Signature
guarantees are required for (1) change of registration requests, (2) requests to
establish or to change exchange privileges or telephone and bank wire redemption
service other than through your initial account application, and (3) redemption
requests in excess of $50,000. Signature guarantees are acceptable from a member
bank of the Federal Reserve System, a savings and loan institution, credit union
(if authorized under state law), registered broker-dealer, securities exchange,
or association clearing agency and must appear on the written request for change
of registration, establishment or change in exchange privileges, or redemption
request.
OTHER IMPORTANT INVESTMENT INFORMATION
--------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information is meant as a general summary for U.S. taxpayers.
Additional tax information appears in the SAI. Shareholders should rely their
own tax advisers for advice about the particular federal, state and local tax
consequences to them of investing in the Fund.
The Fund will distribute most of its income and gains to its shareholders every
year. Income dividends, if any, will be paid quarterly and capital gains
distributions, if any, will be made at least annually. Although the Fund will
not be taxed on amounts it distributes, shareholders will generally be taxed,
regardless of whether distributions are received in cash or are reinvested in
additional Fund shares. A particular distribution generally will be taxable as
either ordinary income or long-term capital gains. If a Fund designates a
distribution as a capital gain distribution, it will be taxable to shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares.
If the Fund declares a dividend in October, November or December but pays it in
January, it may be taxable to shareholders as if they received it in the year it
was declared. Each year each shareholder will receive a statement detailing the
tax status of any Fund distributions for that year.
Distributions may be subject to state and local taxes, as well as federal taxes.
Shareholders who hold Fund shares in a tax-deferred account, such as a
retirement plan, generally will not have to pay tax on Fund distributions until
they receive distributions from the account.
A shareholder who sells or redeems shares will generally realize a capital gain
or loss, which will be long-term or short-term, generally depending upon the
shareholder's holding period for the Fund shares. An exchange of shares may be
treated as a sale.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability.
12
<PAGE>
YEAR 2000
Like other mutual funds, the Fund and the service providers for the Fund rely
heavily on the reasonably consistent operation of their computer systems. Many
software programs and certain computer hardware in use today cannot properly
process information after December 31, 1999, because of the method by which
dates are encoded and calculated in such programs and hardware. This problem,
commonly referred to as the "Year 2000 Issue," could, among other things,
negatively impact the processing of trades, the distribution of securities, the
pricing of securities, and other investment-related and settlement activities.
The Trust is currently obtaining and assessing information with respect to the
actions that have been taken and the actions that are planned to be taken by
each of its service providers to prepare their computer systems for the Year
2000. While the Trust expects that each of the Fund's service providers will
have adapted their computer systems to address the Year 2000 Issue, there can be
no assurance that this will be the case or that the steps taken by the Trust
will be sufficient to avoid any adverse impact to the Fund.
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the Fund for the fiscal period ended May 31, 1999. The
financial data have been audited by Deloitte & Touche LLP, independent auditors,
whose report covering such period is included in the Statement of Additional
Information. This information should be read in conjunction with the Fund's
latest audited annual financial statements and notes thereto, which are also
included in the Statement of Additional Information, a copy of which may be
obtained at no charge by calling the Fund. Further information about the
performance of the Fund is contained in the Annual Report of the Fund, a copy of
which may also be obtained at no charge by calling the Fund.
(For a Share Outstanding throughout the Period)
================================================================================
Period from June 29, 1998
(commencement of operations)
to May 31, 1999
================================================================================
Net asset value, beginning of period ......................... $ 10.00
Income from investment operations (a)
Net investment income ................................. 0.02
Net realized and unrealized gain on investments ....... 0.35
-------
Total from investment operations ................ 0.37
-------
Distribution to shareholders from
Net investment income ................................. (0.01)
-------
Net asset value, end of period ............................... $ 10.36
=======
Total return ................................................. 3.76 %
=======
Ratios/supplemental data
Net assets, end of period .................................. $ 8,606,575
===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ......... 2.68 % (b)
After expense reimbursements and waived fees .......... 1.25 % (b)
Ratio of net investment (loss) income to average net assets
Before expense reimbursements and waived fees ......... (1.07)% (b)
After expense reimbursements and waived fees .......... 0.35 % (b)
Portfolio turnover rate .................................... 45.51 %
(a) Includes undistributed net investment income of $0.00 per share and
undistributed net realized gains and unrealized gains of $0.00 per share,
from June 1, 1998 (seed date) through June 29, 1998 (commencement of
operations).
(b) Annualized.
13
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
SCM STRATEGIC GROWTH FUND
________________________________________________________________________________
Additional information about the Fund is available in the Fund's Statement of
Additional Information. The Fund's Annual and Semi-annual Reports include a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal period.
These reports and the Statement of Additional Information are available free of
charge upon request by contacting us:
By telephone: 1-800-773-3863
By mail: SCM Strategic Growth Fund
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.scmfunds.com
Information about the Fund can also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Inquiries on the operations of the public
reference room may be made by calling the SEC at 1-800-SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet site at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
Investment Company Act file number 811-08745
<PAGE>
_______________________________________
[LOGO]
SCM STRATEGIC GROWTH FUND
_______________________________________
PROSPECTUS
September 30, 1999
<PAGE>
PART B
======
STATEMENT OF ADDITIONAL INFORMATION
SCM STRATEGIC GROWTH FUND
September 30, 1999
A Series of the
SCM INVESTMENT TRUST
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-800-773-3863
Table of Contents
-----------------
OTHER INVESTMENT POLICIES.................................................... 2
INVESTMENT LIMITATIONS....................................................... 7
PORTFOLIO TRANSACTIONS....................................................... 8
NET ASSET VALUE.............................................................. 9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................... 10
DESCRIPTION OF THE TRUST..................................................... 10
ADDITIONAL INFORMATION CONCERNING TAXES...................................... 11
MANAGEMENT AND OTHER SERVICE PROVIDERS....................................... 12
SPECIAL SHAREHOLDER SERVICES................................................. 15
ADDITIONAL INFORMATION ON PERFORMANCE........................................ 16
FINANCIAL STATEMENTS......................................................... 17
APPENDIX A - DESCRIPTION OF RATINGS.......................................... 18
This Statement of Additional Information (the "SAI") is meant to be read in
conjunction with the Prospectus, dated the same date as this SAI, for the SCM
Strategic Growth Fund (the "Fund"), as the Prospectus may be amended or
supplemented from time to time, and is incorporated by reference in its entirety
into the Prospectus. Because this SAI is not itself a prospectus, no investment
in shares of the Fund should be made solely upon the information contained
herein. Copies of the Fund's Prospectus may be obtained at no charge by writing
or calling the Fund at the address and phone number shown above. Capitalized
terms used but not defined herein have the same meanings as in the Prospectus.
<PAGE>
OTHER INVESTMENT POLICIES
The following policies supplement the Fund's investment objective and policies
as set forth in the Prospectus of the Fund. Attached to this SAI is Appendix A,
which contains descriptions of the rating symbols used by Rating Agencies for
securities in which the Fund may invest. The Fund commenced operations June 29,
1998 as a separate diversified investment portfolio to the SCM Investment Trust
("Trust").
Repurchase Agreements. The Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resells it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale will
occur within one to seven days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company Act of
1940, as amended (the "1940 Act"), collateralized by the underlying security.
The Trust will implement procedures to monitor on a continuous basis the value
of the collateral serving as security for repurchase obligations. Additionally,
the Advisor to the Fund will consider the creditworthiness of the vendor. If the
vendor fails to pay the agreed upon resale price on the delivery date, the Fund
will retain or attempt to dispose of the collateral. The Fund's risk is that
such default may include any decline in value of the collateral to an amount
which is less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Fund will not enter into any repurchase agreement which will
cause more than 10% of its net assets to be invested in repurchase agreements
which extend beyond seven days.
Foreign Securities. The Fund may invest in the securities of foreign private
issuers. The same factors would be considered in selecting foreign securities as
with domestic securities. Foreign securities investment presents special
consideration not typically associated with investment in domestic securities.
Foreign taxes may reduce income. Currency exchange rates and regulations may
cause fluctuations in the value of foreign securities. Foreign securities are
subject to different regulatory environments than in the United States and,
compared to the United States, there may be a lack of uniform accounting,
auditing and financial reporting standards, less volume and liquidity and more
volatility, less public information, and less regulation of foreign issuers.
Countries have been known to expropriate or nationalize assets, and foreign
investments may be subject to political, financial, or social instability, or
adverse diplomatic developments. There may be difficulties in obtaining service
of process on foreign issuers and difficulties in enforcing judgments with
respect to claims under the U.S. Securities laws against such issuers. Favorable
or unfavorable differences between U.S. and foreign economies could affect
foreign securities values. The U.S. Government has, in the past, discouraged
certain foreign investments by U.S. investors through taxation or other
restrictions and it is possible that such restrictions could be imposed again.
The Fund will limit foreign equity investments to those traded domestically on
U.S. securities exchanges and denominated in U.S. currency. The prices of such
securities are denominated in U.S. dollars while the underlying company may
maintains its records in a foreign currency. Such a disparity may result in
greater volatility than would be expected with equities of domestic U.S.
companies. The Fund may also acquire foreign denominated debt traded on domestic
U.S. exchanges, or traded over-the-counter by U.S.-based securities dealers. See
"Foreign Debt Securities." Although the Fund is not limited in the amount of
these types of foreign securities it may acquire, it is not presently expected
that within the next 12 months the Fund will have in excess of 10% of its assets
in foreign securities.
Investment Companies. In order to achieve its investment objective, the Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 10% of the Fund's assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's assets. To the extent a Fund invests in other investment companies, the
shareholders of the Fund would indirectly pay a portion of the operating costs
of the underlying investment companies. These costs include management,
brokerage, shareholder servicing and other operational expenses. Shareholders of
the Fund would then indirectly pay higher operational costs than if they owned
shares of the underlying investment companies directly.
Real Estate Securities. The Fund will not invest in real estate (including
mortgage loans and limited partnership interests), but may invest in readily
marketable securities issued by companies that invest in real estate or
interests therein. The Fund may also invest in readily marketable interests in
real estate investment trusts ("REITs"). REITs are generally publicly traded on
the national stock exchanges and in the over-the-counter market and have varying
degrees of liquidity. Although the Fund is not limited in the amount of these
types of real estate securities it may acquire, it is not presently expected
that within the next 12 months the Fund will have in excess of 10% of its assets
in real estate securities.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although the Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
Money Market Instruments. Money market instruments may include U.S. Government
Securities or corporate debt securities (including those subject to repurchase
agreements), provided that they mature in thirteen months or less from the date
of acquisition and are otherwise eligible for purchase by the Fund. Money market
instruments also may include Banker's Acceptances and Certificates of Deposit of
domestic branches of U.S. banks, Commercial Paper and Variable Amount Demand
Master Notes ("Master Notes"). Banker's Acceptances are time drafts drawn on and
"accepted" by a bank. When a bank "accepts" such a time draft, it assumes
liability for its payment. When the Fund acquires a Banker's Acceptance the bank
which "accepted" the time draft is liable for payment of interest and principal
when due. The Banker's Acceptance carries the full faith and credit of such
bank. A Certificate of Deposit ("CD") is an unsecured interest bearing debt
obligation of a bank. Commercial Paper is an unsecured, short-term debt
obligation of a bank, corporation or other borrower. Commercial Paper maturity
generally ranges from two to 270 days and is usually sold on a discounted basis
rather than as an interest-bearing instrument. The Fund will invest in
Commercial Paper only if it is rated one of the top two rating categories by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Services
("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps ("D&P") or, if
not rated, of equivalent quality in the Advisor's opinion. Commercial Paper may
include Master Notes of the same quality. Master Notes are unsecured obligations
which are redeemable upon demand of the holder and which permit the investment
of fluctuating amounts at varying rates of interest. Master Notes are acquired
by the Fund only through the Master Note program of the Fund's custodian bank,
acting as administrator thereof. The Advisor will monitor, on a continuous
basis, the earnings power, cash flow and other liquidity ratios of the issuer of
a Master Note held by the Fund.
Money market instruments may be purchased when the Advisor believes interest
rates are rising, the prospect for capital appreciation in the equity and longer
term fixed income securities' markets are not attractive, or when the "yield
curve" favors short term fixed income instruments versus longer term fixed
income instruments. Money market instruments may be purchased for temporary
defensive purposes; to accumulate cash for anticipated purchases of portfolio
securities and to provide for shareholder redemptions and operating expenses of
the Fund.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of the Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. The
absence of a trading market can make it difficult to ascertain a market value
for illiquid investments. Disposing of illiquid securities before maturity may
be time consuming and expensive and it may be difficult or impossible for the
Fund to sell illiquid investments promptly at an acceptable price. In
determining the liquidity of the Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Investments currently considered by the Fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. If through a change in values, net
assets or other circumstances, the Fund were in a position where more than 10%
of its net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
Restricted Securities. Within its limitation on investment in illiquid
securities, the Fund may purchase restricted securities that generally can be
sold in privately negotiated transactions, pursuant to an exemption from
registration under the federal securities laws, or in a registered public
offering. Where registration is required, the Fund may be obligated to pay all
or part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time the Fund may be permitted
to sell a security under an effective registration statement. If during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.
Options Trading. The Fund may invest up to 10% of its total assets in options on
equity securities, options on equity indices, and options on equity industry
sector indices, for hedging purposes. This is a highly specialized activity that
entails greater than ordinary investment risks. Regardless of how much the
market price of the underlying security increases or decreases, the option
buyer's risk is limited to the amount of the original investment for the
purchase of the option. However, options may be more volatile than the
underlying securities, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying securities.
A listed call option gives the purchaser of the option the right to buy from a
clearing corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking the
obligations under the option contract. A listed put option gives the purchaser
the right to sell to a clearing corporation the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. Put and call options purchased
by the Fund will be valued at the last sale price or, in the absence of such a
price, at the mean between bid and asked prices.
The obligation of the Fund to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the Fund
executing a closing purchase transaction, which is effected by purchasing on an
exchange an option of the same series (i.e., same underlying security, exercise
price and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security or to permit the writing of a new option containing
different terms on such underlying security. The cost of such liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. An option position may be closed out only on an exchange that
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A covered call option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline in the underlying security during such period. The Fund will
write an option on a particular security only if the Advisor believes that a
liquid secondary market will exist on an exchange for options of the same series
which will permit the Fund to make a closing purchase transaction in order to
close out its position.
When the Fund writes a covered call option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Fund may deliver the underlying security held by it or purchase the underlying
security in the open market. In either event, the proceeds of the sale will be
increased by the net premium originally received, and the Fund will realize a
gain or loss. If a secured put option is exercised, the amount paid by the Fund
for the underlying security will be partially offset by the amount of the
premium previously paid to the Fund. Premiums from expired options written by
the Fund and net gains from closing purchase transactions are treated as
short-term capital gains for federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses.
Stock Index Options. The Fund may purchase or sell put and call stock index
options for hedging purposes. Stock index options are put options and call
options on various stock indexes. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the index. The option holder who exercises the index option receives
an amount of cash if the closing level of the stock index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the stock index and the exercise price
of the option expressed in dollars times a specified multiple. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
The Fund may purchase call and put stock index options in an attempt to either
hedge against the risk of unfavorable price movements adversely affecting the
value of the Fund's securities, or securities the Fund intends to buy, or
otherwise in furtherance of the Fund's investment objectives. The Fund will sell
(write) stock index options for hedging purposes or in order to close out
positions in stock index options which the Fund has purchased.
The Fund's use of stock index options is subject to certain risks. Successful
use by the Fund of options on stock indexes will be subject to the ability of
the Advisor to correctly predict movements in the directions of the stock
market. This requires different skills and techniques than predicting changes in
the prices of individual securities. In addition, the Fund's ability to
effectively hedge all or a portion of the securities in its portfolio, in
anticipation of or during a market decline through transactions in put options
on stock indexes, depends on the degree to which price movements in the
underlying index correlate with the price movements in the Fund's portfolio
securities. Inasmuch as the Fund's portfolio securities will not duplicate the
components of an index, the correlation will not be perfect. Consequently, the
Fund will bear the risk that the prices of its portfolio securities being hedged
will not move in the same amount as the prices of the Fund's put options on the
stock indexes. It is also possible that there may be a negative correlation
between the index and the Fund's portfolio securities that would result in a
loss on both such portfolio securities and the options on stock indexes acquired
by the Fund.
Corporate Debt Securities. The Fund may invest in U.S. dollar denominated
corporate debt securities of domestic issuers limited to corporate debt
securities (corporate bonds, debentures, notes and other similar corporate debt
instruments) that meet the minimum ratings criteria set forth for the Fund, or,
if unrated, are in the Advisor's opinion comparable in quality to corporate debt
securities in that the Fund may invest. The Fund may invest in convertible bonds
of domestic issuers meeting such quality requirements and other corporate debt
securities generally in the form of money market instruments as described above.
Up to 15% of the Fund could be invested in fixed income securities rated below
"investment grade." See "Lowered Rated Debt Securities" below for additional
information on the lower rated securities.
Lower Rated Debt Securities. The Fund may invest in debt securities which are
rated Caa or higher by Moody's or CCC or higher by S&P or Fitch or equivalent
unrated securities. However, the Fund may not invest more than 15% of its assets
in debt securities rated lower than Baa by Moody's or BBB by S&P or Fitch or
securities not rated by Moody's, S&P or Fitch which the Advisor deems to be of
equivalent quality. Bonds rated BB or Ba or below (or comparable unrated
securities) are commonly referred to as "junk bonds" and are considered
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment standing, and be in default. As a result, investment in such
bonds will entail greater risks than those associated with investment in
investment-grade bonds (i.e., bonds rated BBB or better by S&P or Fitch or Baa
or better by Moody's).
An economic downturn could severely affect the ability of highly leveraged
issuers to service their debt obligations or to repay their obligations upon
maturity. Factors having an adverse impact on the market value of lower rated
securities will have an adverse effect on the Fund's net asset value to the
extent it invests in such securities. In addition, the Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in payment
of principal or interest on its portfolio holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on the
Fund's ability to dispose of a particular security when necessary to meet its
liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Advisor could find it more difficult to sell these securities or may be able
to sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated securities,
under these circumstances, may be less than the prices used in calculating the
Fund's net asset value.
Since investors generally perceive that there are greater risks associated with
the medium to lower rated securities of the type in which the Fund may invest,
the yields and prices of such securities may tend to fluctuate more than those
for higher rated securities. In the lower quality segments of the fixed-income
securities market, changes in perceptions of issuers' creditworthiness tend to
occur more frequently and in a more pronounced manner than do changes in higher
quality segments of the fixed-income securities market resulting in greater
yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer higher
yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. In addition to the risk of default,
there are the related costs of recovery on defaulted issues. The Advisor will
attempt to reduce these risks through diversification of the Fund's portfolio
and by analysis of each issuer and its ability to make timely payments of income
and principal, as well as broad economic trends in corporate developments.
Foreign Debt Securities. The Fund may invest in foreign denominated debt traded
on domestic U.S. exchanges, or traded over-the-counter by U.S.-based securities
dealers. In some cases these debt securities may be denominated in the native
currency of the issuer. In the event such securities are denominated in foreign
currency those securities will not only be subject to the risks associated with
companies domiciled in foreign countries (as described herein under "Foreign
Securities"), but will also be subject to the volatility and risk associated
with changes in currency exchange rates. Because of this additional risk and
volatility, the Advisor does not anticipate holding more than 5% of the Fund in
foreign denominated debt securities.
U.S. Government Securities. The Fund may invest a portion of its portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank "FFCB"), Federal Home Loan Bank
("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee Valley
Authority. U.S. Government Securities may be acquired subject to repurchase
agreements. While obligations of some U.S. Government sponsored entities are
supported by the full faith and credit of the U.S. Government (e.g. GNMA),
several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, other than as set forth above, since it is not
obligated to do so by law. The guarantee of the U.S. Government does not extend
to the yield or value of the Fund's shares.
Borrowing. The Fund may borrow, temporarily, up to 5% of its total assets for
extraordinary or emergency purposes and 15% of its total assets to meet
redemption requests, which might otherwise require untimely disposition of
portfolio holdings. To the extent the Fund borrows for these purposes, the
effects of market price fluctuations on the portfolio's net asset value will be
exaggerated. If, while such borrowing is in effect, the value of the Fund's
assets declines, the Fund could be forced to liquidate portfolio securities when
it is disadvantageous to do so. The Fund would incur interest and other
transaction costs in connection with borrowing. The Fund will borrow only from a
bank. The Fund will not make any further investments if the borrowing exceeds 5%
of its total assets until such time as repayment has been made to bring the
total borrowing below 5% of its total assets.
Custodial Receipts and Components. Securities issued by the U.S. Government may
be acquired by the Fund in the form of custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds. Such notes and bonds are held in custody by a bank
on behalf of the owners. These custodial receipts are known by various names,
including "Treasury Receipts," "Treasury Investment Growth Receipts" ("TIGRs"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). The Fund may also
invest in separately traded principal and interest components of securities
issued or guaranteed by the U.S. Treasury. The principal and interest components
of selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS"). Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Custodian receipts and components are not guaranteed by the U.S. Treasury.
INVESTMENT LIMITATIONS
The Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose means the lesser of (i)
67% of the Fund's outstanding shares represented in person or by proxy at a
meeting at which more than 50% of its outstanding shares are represented, or
(ii) more than 50% of its outstanding shares. Unless otherwise indicated,
percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Fund may not:
1. Issue senior securities, borrow money, or pledge its assets, except that it
may borrow from banks as a temporary measure (a) for extraordinary or
emergency purposes, in amounts not exceeding 5% of its total assets or (b)
to meet redemption requests, in amounts not exceeding 15% of its total
assets. The Fund will not make any investments if borrowing exceeds 5% of
its total assets until such time as total borrowing represents less than 5%
of Fund assets;
2. With respect to 75% of its total assets, invest more than 5% of the value
of its total assets in the securities of any one issuer or purchase more
than 10% of the outstanding voting securities of any class of securities of
any one issuer (except that securities of the U.S. government, its
agencies, and instrumentalities are not subject to this limitation);
3. Invest 25% or more of the value of its total assets in any one industry
(except that securities of the U.S. Government, its agencies, and
instrumentalities are not subject to this limitation);
4. Invest for the purpose of exercising control or management of another
issuer;
5. Purchase or sell commodities or commodities contracts; real estate
(including limited partnership interests, but excluding readily marketable
interests in real estate investment trusts or other securities secured by
real estate or interests therein or readily marketable securities issued by
companies that invest in real estate or interests therein); or interests in
oil, gas, or other mineral exploration or development programs or leases
(although it may invest in readily marketable securities of issuers that
invest in or sponsor such programs or leases);
6. Underwrite securities issued by others except to the extent that the
disposition of portfolio securities, either directly from an issuer or from
an underwriter for an issuer, may be deemed to be an underwriting under the
federal securities laws;
7. Participate on a joint or joint and several basis in any trading account in
securities;
8. Invest its assets in the securities of one or more investment companies
except to the extent permitted by the 1940 Act; and
9. Make loans of money or securities, except that the Fund may invest in
repurchase agreements, money market instruments, and other debt securities.
The following investment limitations are not fundamental and may be changed
without shareholder approval. As a matter of non-fundamental policy, the Fund
may not:
1. Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors) if more than 5% of its total assets would be invested in
such securities;
2. Invest more than 10% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others,
(a) securities for which no readily available market exists or which have
legal or contractual restrictions on resale,
(b) fixed-time deposits that are subject to withdrawal penalties and have
maturities of more than seven days, and
(c) repurchase agreements not terminable within seven days;
3. Invest in the securities of any issuer if those officers or Trustees of the
Trust and those officers and directors of the Advisor who individually own
more than 1/2 of 1% of the outstanding securities of such issuer together
own more than 5% of such issuer's securities;
4. Write, purchase, or sell puts, calls, straddles, spreads, or combinations
thereof or futures contracts or related options (except that the Fund may
engage in options transactions to the extent described in the Prospectus or
the Statement of Additional Information);
5. Make short sales of securities or maintain a short position, except short
sales "against the box." (A short sale is made by selling a security the
Fund does not own. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no additional
cost securities identical to those sold short.) While the Fund has reserved
the right to make short sales "against the box," the Advisor has no present
intention of engaging in such transactions at this time or during the
coming year; and
6. Purchase foreign securities other than those traded on domestic U.S.
exchanges and other foreign debt securities as described in the Prospectus
or the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of Trustees, the Advisor
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Fund.
The annualized portfolio turnover rate for the Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of the Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and the Fund may engage in short term trading to achieve its
investment objectives.
Purchases of money market instruments by the Fund are made from dealers,
underwriters and issuers. The Fund currently does not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The Fund's fixed income portfolio transactions will normally be
principal transactions executed in over-the-counter markets and will be executed
on a "net" basis, which may include a dealer markup. With respect to securities
traded only in the over-the-counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
The Fund may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for the Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the spread or commission, if
any, both for the specific transaction and on a continuing basis. The sale of
Fund shares may be considered when determining the firms that are to execute
brokerage transactions for the Fund. In addition, the Advisor is authorized to
cause the Fund to pay a broker-dealer which furnishes brokerage and research
services a higher spread or commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Advisor determines in good faith that such spread or commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Advisor to the Fund. Such brokerage and research
services might consist of reports and statistics relating to specific companies
or industries, general summaries of groups of stocks or bonds and their
comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Fund. The Trustees will periodically review any
spread or commissions paid by the Fund to consider whether the spread or
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which the Advisor
exercises investment discretion. Conversely, the Fund may be the primary
beneficiary of the research or services received as a result of securities
transactions effected for such other account or investment company.
The Fund will not execute portfolio transactions through, acquire securities
issued by, make savings deposits in or enter into repurchase agreements with the
Advisor or an affiliated person of the Advisor (as such term is defined in the
1940 Act) acting as principal, except to the extent permitted by the Securities
and Exchange Commission ("SEC"). In addition, the Fund will not purchase
securities during the existence of any underwriting or selling group relating
thereto of which the Advisor, or an affiliated person of the Advisor, is a
member, except to the extent permitted by the SEC. Under certain circumstances,
the Fund may be at a disadvantage because of these limitations in comparison
with other investment companies that have similar investment objectives but are
not subject to such limitations.
Investment decisions for the Fund will be made independently from those for any
other series of the Trust, if any, and for any other investment companies and
accounts advised or managed by the Advisor. Such other investment companies and
accounts may also invest in the same securities as the Fund. To the extent
permitted by law, the Advisor may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions. When a purchase or sale of the
same security is made at substantially the same time on behalf of the Fund and
another investment company or account, the transaction will be averaged as to
price and available investments allocated as to amount, in a manner which the
Advisor believes to be equitable to the Fund and such other investment company
or account. In some instances, this investment procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
sold by the Fund.
For the fiscal period ended May 31, 1999, the total dollar amount of brokerage
commissions paid by the Fund was $12,723.
NET ASSET VALUE
The net asset value per share of the Fund is normally determined at the time
regular trading closes on the New York Stock Exchange, typically 4:00 p.m., New
York time, Monday through Friday, except on business holidays when the New York
Stock Exchange is closed or days on which the NYSE closes early for holidays or
trading limitations. The New York Stock Exchange recognizes the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, and Christmas
Day. Any other holiday recognized by the New York Stock Exchange will be
considered a business holiday on which the net asset value of the Fund will not
be calculated.
The net asset value per share of the Fund is calculated by adding the value of
the Fund's securities and other assets belonging to the Fund, subtracting the
liabilities charged to the Fund, and dividing the result by the number of
outstanding shares. "Assets belonging to" the Fund consist of the consideration
received upon the issuance of shares of the Fund together with all net
investment income, realized gains/losses and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds, and a
portion of any general assets of the Trust not belonging to a particular
investment Fund. Assets belonging to the Fund are charged with the direct
liabilities of the Fund and with a share of the general liabilities of the
Trust, which are normally allocated in proportion to the number of or the
relative net asset values of all of the Trust's series at the time of allocation
or in accordance with other allocation methods approved by the Board of
Trustees. Subject to the provisions of the Declaration of Trust, determinations
by the Board of Trustees as to the direct and allocable liabilities, and the
allocable portion of any general assets, with respect to the Fund are
conclusive.
For the fiscal period ended May 31, 1999, the total expenses of the Fund after
fee waivers and reimbursements were $53,201.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of the Fund are offered and sold on a continuous basis and may
be purchased through authorized investment dealers or directly by contacting the
Distributor or the Fund. Selling dealers have the responsibility of transmitting
orders promptly to the Fund. The public offering price of shares of the Fund
equals net asset value. Capital Investment Group, Inc. (the "Distributor"),
serves as distributor of shares of the Fund.
Redemptions. Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. The Fund may also suspend or postpone
the recordation of the transfer of shares upon the occurrence of any of the
foregoing conditions.
In addition to the situations described in the Prospectus under "How Shares May
Be Redeemed," the Fund may redeem shares involuntarily to reimburse the Fund for
any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust is an unincorporated business trust organized under Massachusetts law
on April 8, 1998. The Trust's Declaration of Trust authorizes the Board of
Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Declaration of Trust
currently provides for the shares of one series, the subject of the Prospectus
and this SAI. The number of shares of each series shall be unlimited. The Trust
does not intend to issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as the Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Fund, will vote
together and not separately on a series-by-series or class-by-class basis,
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular series or class. Rule 18f-2 under the 1940 Act provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Trust shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each series or class affected by the matter. A matter
affects a series or class unless it is clear that the interests of each series
or class in the matter are substantially identical or that the matter does not
affect any interest of the series or class. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a series only if approved by a
majority of the outstanding shares of such series. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of the Trust voting together,
without regard to a particular series or class.
When used in the Prospectus or this SAI, a "majority" of shareholders means the
vote of the lesser of (1) 67% of the shares of the Trust or the applicable
series or class present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable series or class.
When issued for payment as described in the Prospectus and this SAI, shares of
the Fund will be fully paid and non-assessable.
The Declaration of Trust provides that the Trustees of the Trust will not be
liable in any event in connection with the affairs of the Trust, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated,
the Declaration of Trust provides that a Trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
The Fund will be treated as a separate corporate entity under the Code and
intends to qualify or remain qualified as a regulated investment company. In
order to so qualify, each series must elect to be a regulated investment company
or have made such an election for a previous year and must satisfy, in addition
to the distribution requirement described in the Prospectus, certain
requirements with respect to the source of its income for a taxable year. At
least 90% of the gross income of each series must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stocks, securities or foreign currencies, and other income
derived with respect to the series' business of investing in such stock,
securities or currencies. Any income derived by a series from a partnership or
trust is treated as derived with respect to the series' business of investing in
stock, securities or currencies only to the extent that such income is
attributable to items of income that would have been qualifying income if
realized by the series in the same manner as by the partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. The
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
The Fund will designate any distribution of long term capital gains as a capital
gain dividend in a written notice mailed to shareholders within 60 days after
the close of the series' taxable year. Shareholders should note that, upon the
sale or exchange of series shares, if the shareholder has not held such shares
for at least six months, any loss on the sale or exchange of those shares will
be treated as long term capital loss to the extent of the capital gain dividends
received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends or 31% of gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, or who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund that
they are not subject to backup withholding when required to do so or that they
are "exempt recipients."
Dividends paid by the Fund derived from net investment income or net short-term
capital gains are taxable to shareholders as ordinary income, whether received
in cash or reinvested in additional shares. Long-term capital gains
distributions, if any, are taxable as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held.
The Fund will send shareholders information each year on the tax status of
dividends and disbursements. A dividend or capital gains distribution paid
shortly after shares have been purchased, although in effect a return of
investment, is subject to federal income taxation. Dividends from net investment
income, along with capital gains, will be taxable to shareholders, whether
received in cash or shares and no matter how long you have held Fund shares,
even if they reduce the net asset value of shares below your cost and thus, in
effect, result in a return of a part of your investment.
MANAGEMENT AND OTHER SERVICE PROVIDERS
Trustees and Officers. The Trustees and executive officers of the Trust, their
ages, and their principal occupations for the last five years are as follows:
<TABLE>
<S> <C> <C>
- --------------------------------------------- ------------------------------ ---------------------------------------------
Position(s) with the Fund Principal Occupation(s)
Name, Age and Address and/or Trust During Past 5 Years
- --------------------------------------------- ------------------------------ ---------------------------------------------
Michael A. Farris, 41 Trustee of the Trust Chief Financial Officer,
195 Record Drive BoWevil Express, LLC,
Henderson, Tennessee 38340 Henderson, Tennessee, since 1995;
Previously, Director of Finance,
Noma Outdoor Products,
Jackson, Tennessee
- --------------------------------------------- ------------------------------ ---------------------------------------------
David R. Reed, 51 Trustee of the Trust Principal,
281 Reed Farm Road Newhouse, Ltd.,
Martin, Tennessee 38237 Martin, Tennessee
- --------------------------------------------- ------------------------------ ---------------------------------------------
Dan P. Shanklin, 60* Trustee and Chairman of the Chairman,
1420 Osborne Street Trust Shanklin Capital Management, Inc.,
Suite B16 Humboldt, Tennessee
Humboldt, Tennessee
- --------------------------------------------- ------------------------------ ---------------------------------------------
Tim L. Shanklin, 33* Trustee of the Trust President,
1420 Osborne Street President of the Fund Shanklin Capital Management, Inc.,
Suite B16 Humboldt, Tennessee
Humboldt, Tennessee
- --------------------------------------------- ------------------------------ ---------------------------------------------
Mark A. Simmons, 31 Trustee of the Trust Senior Financial Analyst,
106 Harbor Village Dr., #102 FDX Corporation,
Memphis, Tennessee 38103 Memphis, Tennessee, since 1995;
Previously, Financial Analyst,
Baptist Memorial Healthcare System,
Memphis, Tennessee
- --------------------------------------------- ------------------------------ ---------------------------------------------
C. Frank Watson, III, 28 Secretary of the Trust Vice President,
105 North Washington Street The Nottingham Company, Inc.,
Rocky Mount, North Carolina 27802 Rocky Mount, North Carolina
- --------------------------------------------- ------------------------------ ---------------------------------------------
Julian G. Winters, 30 Treasurer and Assistant Legal and Compliance Director,
105 North Washington Street Secretary of the Trust The Nottingham Company, Inc.,
Rocky Mount, North Carolina 27802 Rocky Mount, North Carolina, since 1996;
Previously, Operations Manager,
Tar Heel Medical, Inc.,
Nashville, North Carolina
- --------------------------------------------- ------------------------------ ---------------------------------------------
* Indicates that Trustee is an "interested person" of the Trust for purposes
of the 1940 Act.
</TABLE>
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $500 each year plus expenses
incurred in connection with attendance at each Board meeting.
<TABLE>
<S> <C> <C> <C> <C>
Compensation Table*
Pension
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued As Annual from the Trust
Name of Person, From the Part of Fund Benefits Upon Paid to
Position Fund Expenses Retirement Trustees
-------- ---- -------- ---------- --------
Michael A. Farris
Trustee $500 0 0 $500
David R. Reed
Trustee $500 0 0 $500
Mark A. Simmons
Trustee $500 0 0 $500
* Figures are estimates for the fiscal period ended May 31, 1999.
</TABLE>
Principal Holders of Voting Securities. As of July 20, 1999, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) less than 1% of the then outstanding shares of the Fund. On
the same date no shareholder owned of record more than 5% of the outstanding
shares of beneficial interest of the Fund as of July 20, 1999.
Investment Advisor. Information about Shanklin Capital Management, Inc. (the
"Advisor") and its duties and compensation as Advisor are contained in the
Prospectus.
The Advisor will receive a monthly management fee equal to an annual rate of
0.85% of the average daily net assets of the Fund. For the fiscal period ended
May 31, 1999, after waivers of a portion of the fee, the Advisor received $2,057
of its fees.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
Fund Accountant and Administrator. The Trust has entered into a Fund Accounting
and Administration Agreement with The Nottingham Company (the "Administrator"),
105 North Washington Street, Post Office Drawer 69, Rocky Mount, North Carolina
27802-0069, pursuant to which the Administrator receives a fund administration
fee at the annual rate of 0.15% of the average daily net assets of the Fund on
the first $100 million; and 0.125% of its average daily net assets in excess of
$100 million. In addition, the Administrator currently receives a base monthly
fund accounting fee of $2,000 for accounting and recordkeeping services for the
Fund. The Administrator also charges the Fund for certain costs involved with
the daily valuation of investment securities and is reimbursed for out-of-pocket
expenses. The Administrator charges a minimum fee of $3,000 per month for all of
its fees taken in the aggregate, analyzed monthly.
For the fiscal period ended May 31, 1999, the Administrator received $6,318,
after fee waivers, in fund administration fees and $22,000 in fund accounting
fees for its services to the Fund.
The Administrator will perform the following services for the Fund: (1)
coordinate with the Custodian and monitor the services it provides to the Fund;
(2) coordinate with and monitor any other third parties furnishing services to
the Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange for the filing of such registration statements and other
documents with the Securities and Exchange Commission and other federal and
state regulatory authorities as may be required by applicable law; (8) review
and submit to the officers of the Trust for their approval invoices or other
requests for payment of Fund expenses and instruct the Custodian to issue checks
in payment thereof; and (9) take such other action with respect to the Fund as
may be necessary in the opinion of the Administrator to perform its duties under
the agreement. The Administrator will also provide certain accounting and
pricing services for the Fund.
Transfer Agent. The Trust has entered in a Dividend Disbursing and Transfer
Agent agreement with NC Shareholder Services, LLC (the "Transfer Agent"), a
North Carolina limited liability company, to serve as transfer, dividend paying,
and shareholder servicing agent for the Fund. The Transfer Agent is compensated
based upon a $15.00 fee per shareholder per year, subject to a minimum fee of
$750 per month. The address of the Transfer Agent is 107 North Washington
Street, Post Office Box 4365, Rocky Mount, North Carolina 27803-0365. For the
fiscal period ended May 31, 1999, the Transfer Agent received $8,250 for its
services.
Distributor. Capital Investment Group, Inc. (the "Distributor"), Post Office Box
32249, Raleigh, North Carolina 27622, acts as an underwriter and distributor of
the Fund's shares for the purpose of facilitating the registration of shares of
the Fund under state securities laws and to assist in sales of Fund shares
pursuant to a Distribution Agreement (the "Distribution Agreement") approved by
the Board of Trustees of the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
the Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Fund.
The Distributor is a broker-dealer registered with the Securities and Exchange
Commission and a member in good standing of the National Association of
Securities Dealers, Inc.
Either party upon 60-days' prior written notice to the other party may terminate
the Distribution Agreement.
Custodian. First Union National Bank of North Carolina (the "Custodian") serves
as custodian for the Fund's assets. The Custodian's mailing address is Two First
Union Center, Charlotte, North Carolina 28288. The Custodian acts as the
depository for the Fund, safekeeps its portfolio securities, collects all income
and other payments with respect to portfolio securities, disburses monies at the
Fund's request and maintains records in connection with its duties as Custodian.
For its services as Custodian, the Custodian is entitled to receive from the
Fund an annual fee based on the average net assets of the Fund held by the
Custodian.
Independent Auditors. The firm of Deloitte & Touche, LLP, 2500 One PPG Place,
Pittsburgh, Pennsylvania 15222-5401, serves as independent auditors for the Fund
and audits the annual financial statements of the Fund, prepares the Fund's
federal and state tax returns, and consults with the Fund on matters of
accounting and federal and state income taxation. A copy of the most recent
annual report of the Fund will accompany this SAI whenever it is requested by a
shareholder or prospective investor.
Legal Counsel. Dechert Price & Rhoads serves as legal counsel to the Trust and
the Fund.
SPECIAL SHAREHOLDER SERVICES
The Fund offers the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year to date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Administrator will automatically charge the checking account for the amount
specified ($100 minimum) which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Fund.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $5,000 or
more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Fund to redeem the necessary number of shares periodically (each
month, or quarterly in the months of March, June, September and December) in
order to make the payments requested. The Fund has the capacity of
electronically depositing the proceeds of the systematic withdrawal directly to
the shareholder's personal bank account ($5,000 minimum per bank wire).
Instructions for establishing this service are included in the Fund Shares
Application, enclosed in the Prospectus, or available by calling the Fund. If
the shareholder prefers to receive his systematic withdrawal proceeds in cash,
or if such proceeds are less than the $5,000 minimum for a bank wire, checks
will be made payable to the designated recipient and mailed within 7 days of the
valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees" in the Prospectus). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Fund. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the Fund
upon sixty days written notice or by a shareholder upon written notice to the
Fund. Applications and further details may be obtained by calling the Fund at
1-800-773-3863, or by writing to:
SCM Strategic Growth Fund
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases in Kind. The Fund may accept securities in lieu of cash in payment for
the purchase of shares in the Fund. The acceptance of such securities is at the
sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Shares are Valued" in the Prospectus.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the Fund at the address shown herein. Your request should include the
following: (1) the Fund name and existing account registration; (2) signature(s)
of the registered owner(s) exactly as the signature(s) appear(s) on the account
registration; (3) the new account registration, address, social security or
taxpayer identification number and how dividends and capital gains are to be
distributed; (4) signature guarantees (See the Prospectus under the heading
"Signature Guarantees"); and (5) any additional documents which are required for
transfer by corporations, administrators, executors, trustees, guardians, etc.
If you have any questions about transferring shares, call or write the Fund.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of the Fund may be quoted in advertisements,
sales literature, shareholder reports or other communications to shareholders.
The Fund computes the "average annual total return" of the Fund by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested to the ending redeemable value of such
investment. This is done by determining the ending redeemable value of a
hypothetical $1,000 initial payment. This calculation is as follows:
P(1+T)^n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted.
n = period covered by the computation, expressed in terms of
years.
The Fund may also compute the aggregate total return of the Fund, which is
calculated in a similar manner, except that the results are not annualized.
The calculation of average annual total return and aggregate total return assume
that there is a reinvestment of all dividends and capital gain distributions on
the reinvestment dates during the period. The ending redeemable value is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges at the end of the period covered by
the computations.
The total return for the Fund for the fiscal period from commencement of
operations (June 29, 1998) to May 31, 1999 is 3.76%.
The Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Index, the Lehman Aggregate Bond Index, or a combination of such
indices. Comparative performance may also be expressed by reference to a ranking
prepared by a mutual fund monitoring service or by one or more newspapers,
newsletters or financial periodicals. The Fund may also occasionally cite
statistics to reflect its volatility and risk.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above. As indicated, from time to time, the Fund may advertise its performance
compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Fund's Prospectus to obtain a
more complete view of the Fund's performance before investing. Of course, when
comparing the Fund's performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). The Fund may also depict the historical performance of
the securities in which the Fund may invest over periods reflecting a variety of
market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
The Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended May 31, 1999,
including the financial highlights appearing in the Annual Report to
shareholders are incorporated by reference and made a part of this document.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Fund may acquire from time to time fixed income securities that meet the
following minimum rating criteria ("Investment-Grade Debt Securities") (or if
not rated, of equivalent quality as determined by the Advisor). Not more than
50% of the total fixed income portion of the portfolio (not more than 15% of the
Fund's assets) will be invested in fixed income securities that are not
Investment-Grade Debt Securities. The various ratings used by the nationally
recognized securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Fund may invest should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
Standard & Poor's Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity of the obligor to meet its
financial commitment on the obligation.
AA - Debt rated AA differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment on the obligation is
very strong.
A - Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB - Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
Investment-Grade Debt Securities and are regarded, on balance, as having
significant speculative characteristics with respect to the obligor's capacity
to meet its financial commitment on the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such bonds
may have some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to short term notes and
indicates strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation. The rating SP-2 indicates a satisfactory capacity to pay principal
and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Debt which is rated A possesses many favorable investment attributes
and is to be considered as an upper medium grade obligation. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Debt which is rated Baa is considered as a medium grade obligation,
i.e., it is neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such debt lacks outstanding
investment characteristics and in fact has speculative characteristics as
well.
Moody's applies numerical modifiers (l, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. Bonds which are rated Ba, B, Caa, Ca or C by
Moody's are not considered Investment-Grade Debt Securities by the Advisor.
Bonds rated Ba are judged to have speculative elements because their future
cannot be considered as well assured. Uncertainty of position characterizes
bonds in this class, because the protection of interest and principal payments
often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or supporting institutions) are considered to have a
superior ability for repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternative liquidity. Issuers rated Prime-2 (or supporting institutions) are
considered to have a strong ability for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings' trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-l; VMIG-l - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2; VMIG-2 - Obligations bearing these designations are of a high
quality with ample margins of protection.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The risk
factors are more variable and greater in periods of economic stress.
BBB - Bonds rated BBB have below-average protection factors but are still
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff l is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff l+, Duff 1 and
Duff 1- within the highest rating category. Duff l+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
Investment-Grade Debt Securities by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with
higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category. A "ratings outlook" is used to describe the
most likely direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative". The absence of a designation indicates a
stable outlook.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the two highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
The term symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.
<PAGE>
________________________________________________________________________________
SCM STRATEGIC GROWTH FUND
________________________________________________________________________________
a series of the SCM Investment Trust
Annual Report 1999
FOR THE PERIOD ENDED MAY 31,
INVESTMENT ADVISOR
Shanklin Capital Management, Inc.
1420 Osborne Street
Suite B16
Humboldt, TN 38343
1-901-784-4444
SCM STRATEGIC GROWTH FUND
107 North Washington Street
Post Office Drawer 4365
Rocky Mount, North Carolina 27803-0365
1-800-525-3863
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SCM FUNDS (logo)
Dear Fellow Shareholders:
We are pleased to provide you with this inaugural annual report for the SCM
Strategic Growth Fund for the fiscal year ending May 31, 1999. Over this period,
your Fund produced a total return of 3.76%, compared to the 13.95% return of its
benchmark, the Russell 3000, and to the 8.19% return of its peer group index,
the Lipper Flexible Portfolio Fund Index. The underperformance relative to the
comparative indexes can be traced to the Fund's first four months of operation,
July thru October 1998. At that time, investors went through a severe panic,
fearing that serious economic problems in some of the world's emerging markets
would spill over into the U.S. and cause a recession. Risk avoidance motivated
most market participants in the extreme. Investors seemed determined to sell all
securities in which they had significant profits and all securities that
appeared to have above-average risk.
It was also during this time the Fund had the least amount of assets and
accordingly the fewest number of holdings (ranging from 3 to 22 companies). This
"focused" portfolio therefore had the potential over the short-term to deviate
meaningfully from that of broader market indexes such as the Russell 3000 and
the Lipper Flexible Portfolio Fund Index. Soon after this period of
underperformance, net money flows into the Fund substantially increased --
consequently, in conjunction with the broad market "bottom". This new money
allowed for the selective purchase of many great stocks at "bargain basement
prices". Within a few months, the portfolio consisted of forty to fifty
companies and a complement of U.S Treasury Notes and money market instruments.
From October 31, 1998 until May 31, 1999, the SCM Strategic Growth Fund has
returned 27.00%. In comparison, we humbly note the Russell 3000 and the Lipper
Flexible Portfolio Fund Indexes have returned 19.65% and 11.25%, respectively.
Portfolio and Market Thoughts
- -----------------------------
Though we had a few disappointments during the first fiscal year, having
positions in some of the market's top performers compensated for the negative
effects of our disappointing stocks. Fortunately, several Fund holdings have
appreciated by more than 100% since their acquisition. We have enjoyed an
affirming outcome from several big winners, each typically built on a pattern of
earnings surprises and positive earnings revisions. Examples of such winners for
the Fund include Charles Schwab & Co. and Net.B@nk in the financial sector;
technology darlings Cisco Systems, RealNetworks, and MCI Worldcom; and delivery
giant FDX Corporation.
Not all of our investments fared well in the fiscal year. We recognize that
investors dislike negative surprises and we plan to work harder in the upcoming
year to notice changes in the fundamental business trends of the companies we
own -- changes that forecast negative outcomes going forward. While we fully
expect a few negative surprises, we will strive to better anticipate them, and
take appropriate action when need be.
Clearly, investors favored large-cap growth stocks above all others in the
fiscal year. Determining factors seemed to be sustainable, above-average rates
of growth in a challenging growth environment and trading liquidity that allowed
investors to react quickly. In addition to the strong business fundamentals
evidenced by our large-cap companies, we think these two factors also
contributed to the Fund's performance over the course of the year. Nonetheless,
we continue to believe that reasonably-priced high quality, strong growth
companies of all sizes consistently represent the most promising investment
opportunities.
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As we enter the new fiscal year, the equity markets remain generally bullish.
While we do not expect a major sustained downdraft in equity markets in the
presence of a modestly low interest rate environment, a stable U.S. economy, and
a seemingly accommodating Federal Reserve, we also do not expect the recent
euphoria to last all year. One feature we do expect the equity markets to have
in common with last year is volatility. The degree of short-term volatility
correlates directly with valuation levels. With valuations at historically high
levels, we do not expect many dull moments. While extreme volatility can make
for a harrowing existence, it also creates numerous opportunities. We hope to
continue taking advantage of these opportunities to strengthen the Fund for the
long-term.
Of course, we make all our investments with a view toward the long-term. In our
opinion, top quality companies share several characteristics that contribute to
sustained, above-average growth rates: superior technologies or services, strong
balance sheets, clear business models and management teams with the ability to
execute their strategies. We believe investors will continue to seek out
companies with these characteristics.
Year 2000 Computer Issue
- ------------------------
Many computer systems in use today may not be able to recognize any date after
December 31, 1999. If these systems are not fixed by that date, it is possible
that they could generate erroneous information or fail altogether. SCM Funds has
committed to make sure its own major computer systems will continue to function
on and after January 1, 2000. Of course, SCM Funds cannot fix systems that are
beyond its control. If SCM Funds own systems, or the systems of third parties
upon which it relies, do not perform properly after December 31, 1999, the Fund
could be adversely affected.
In addition, the markets for, or values of, securities in which the Fund invests
may possibly be hurt by computer failures affecting portfolio investments or
trading of securities beginning January 1, 2000. For example, improperly
functioning computer systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Fund's investments. At this time, it is
generally believed that foreign issuers, particularly those in emerging and
other markets, may be more vulnerable to Year 2000 problems than companies in
the U.S.
We believe that both our successes and our failures strengthen our resolve and
improve our ability to face the challenges ahead. We know it was not an easy
year to "stay the course" and we deeply value those that did. We believe that
those that have stayed with us will ultimately be rewarded with acceptable
long-term investment performance. Thank you for your continued confidence in the
SCM Strategic Growth Fund.
Sincerely,
/s/ Dan Shanklin /s/ Tim Shanklin
Dan Shanklin Tim Shanklin
Chairman Portfolio Manager
<PAGE>
SCM STRATEGIC GROWTH FUND
Performance Update - $10,000 Investment
For the period from June 29, 1998 (Commencement of Operations)
to May 31, 1999
--------------------------------------------------------------
Lipper Flexible
SCM Strategic Russell Portfolio
Period Ended Growth Fund 3000 Index Fund Index
--------------------------------------------------------------
6/29/98 $10,000 $10,000 $10,000
7/31/98 9,490 9,790 9,902
8/31/98 7,770 8,287 8,930
9/30/98 8,170 8,848 9,285
10/31/98 8,170 9,524 9,725
11/30/98 8,700 10,108 10,125
12/31/98 9,444 10,747 10,531
1/31/99 9,925 11,114 10,734
2/28/99 9,504 10,720 10,438
3/31/99 9,835 11,112 10,698
4/30/99 10,917 11,621 11,012
5/31/99 10,376 11,395 10,819
This graph depicts the performance of the SCM Strategic Growth Fund versus the
Russell 3000 Index and the Lipper Flexible Portfolio Fund Index. It is important
to note that the SCM Strategic Growth Fund is a professionally managed mutual
fund while the indexes are not available for investment and are unmanaged. The
comparison is shown for illustrative purposes only.
Cumulative Total Return
- -----------------------
Since Commencement
of Operations
- -----------------------
3.76%
- -----------------------
The graph assumes an initial $10,000 investment at June 29, 1998. All dividends
and distributions are reinvested.
At May 31, 1999, the SCM Strategic Growth Fund would have grown to $10,376 -
total investment return of 3.76% since June 29, 1998.
At May 31, 1999, a similar investment in the Russell 3000 Index would have grown
to $11,395 - total investment return of 13.95%; and the Lipper Flexible
Portfolio Fund Index would have grown to $10,819 - total investment return of
8.19%, since June 29, 1998.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 81.57%
Auto Parts - Original Equipment - 2.78%
Detroit Diesel Corporation ............................................. 5,340 $ 132,499
Johnson Controls, Inc. ................................................. 1,700 107,206
----------
239,705
----------
Auto & Trucks - 1.37%
DaimlerChrysler AG ..................................................... 1,350 118,041
----------
Beverages - 1.44%
The Coca-Cola Company .................................................. 1,810 123,985
----------
Building Materials - 1.85%
Comfort Systems USA, Inc. .............................................. 10,100 159,075
----------
Commercial Services - 5.05%
Central Parking Corporation ............................................ 3,700 120,250
(a)Concord EFS, Inc. ...................................................... 6,000 203,250
(a)NOVA Corporation ....................................................... 5,000 111,250
----------
434,750
----------
Computers - 1.22%
(a)Dell Computer Corporation .............................................. 3,050 105,034
----------
Computer Software & Services - 11.63%
(a)Acxiom Corporation ..................................................... 5,225 141,075
(a)America Online ......................................................... 1,125 134,437
(a)Cisco Systems, Inc. .................................................... 1,400 152,425
(a)Infoseek Corporation ................................................... 2,750 115,156
(a)Microsoft Corporation .................................................. 1,700 137,169
(a)Network Solutions, Inc. ................................................ 2,150 136,794
(a)RealNetworks, Inc. ..................................................... 2,600 184,275
----------
1,001,331
----------
Electrical Equipment - 1.60%
Emerson Electric Co. ................................................... 2,150 137,331
----------
Electronics - 4.03%
(a)Nichols Research Corporation ........................................... 6,880 139,320
(a)SCI Systems, Inc. ...................................................... 5,000 207,500
----------
346,820
----------
Electronics - Semiconductor - 1.26%
Intel Corporation ...................................................... 2,000 108,125
----------
(Continued)
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Entertainment - 1.58%
Time Warner, Inc. ...................................................... 2,000 $ 136,125
----------
Financial Services - 1.39%
Fannie Mae ............................................................. 1,765 119,910
----------
Financial - Banks, Comercial - 1.44%
First Tennessee National Corporation ................................... 3,000 123,563
----------
Financial - Savings/Loans/Thrifts - 4.01%
(a)Net.B@nk, Inc. ......................................................... 8,100 345,262
----------
Financial - Securities Brokers - 3.13%
The Charles Schwab Corporation ......................................... 2,550 269,662
----------
Lodging - 2.98%
(a)Fairfield Communities, Inc. ............................................ 10,800 171,450
(a)Promus Hotel Corporation ............................................... 3,400 85,000
----------
256,450
----------
Machine - Construction & Mining - 1.70%
Ingersoll-Rand Company ................................................. 2,300 146,481
----------
Manufactured Housing - 1.43%
Clayton Homes, Inc. .................................................... 10,767 123,148
----------
Medical Supplies - 3.47%
Medtronic, Inc. ........................................................ 1,651 117,221
(a)Renal Care Group, Inc. ................................................. 6,550 181,762
----------
298,983
----------
Medical - Biotechnology - 1.07%
Schering-Plough Corporation ............................................ 2,050 91,866
----------
Miscellaneous - Manufacturing - 1.28%
(a)Denali Incorporated .................................................... 14,000 110,250
----------
Oil & Gas - Domestic - 1.82%
Atlantic Richfield ..................................................... 1,870 156,496
----------
Real Estate Investment Trust - 0.96%
Prison Realty Trust, Inc. .............................................. 6,550 82,694
----------
(Continued)
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Restaurants & Food Service - 1.70%
IHOP Corp. ............................................................. 6,120 $ 146,115
----------
Retail - Department Stores - 4.02%
Dayton Hudson Corporation .............................................. 1,700 107,100
(a)Saks Incorporated ...................................................... 4,700 129,837
Wal-Mart Stores, Inc. .................................................. 2,560 109,120
----------
346,057
----------
Retail - General Merchandise - 1.41%
Dollar Tree Stores, Inc. ............................................... 3,600 121,050
----------
Retail - Specialty Line - 3.21%
Home Depot, Inc. ....................................................... 2,250 127,969
(a)Tractor Supply Company ................................................. 5,000 148,750
----------
276,719
----------
Shoes - Leather - 1.42%
Nike, Inc. ............................................................. 2,000 121,875
----------
Telecommunications - 1.12%
CenturyTel, Inc. ....................................................... 2,505 95,973
----------
Telecommunications Equipment - 3.60%
Lucent Technologies Inc. ............................................... 2,400 136,500
Scientific-Atlanta, Inc. ............................................... 4,900 173,031
----------
309,531
----------
Transportation - Air - 3.50%
FDX Corporation ........................................................ 3,200 176,200
Southwest Airlines ..................................................... 3,900 125,044
----------
301,244
----------
Utilities - Telecommunications - 3.10%
BellSouth Corporation .................................................. 2,725 128,586
(a)MCI WorldCom, Inc. ..................................................... 1,600 138,200
----------
266,786
----------
Total Common Stocks (Cost $5,695,401) .................................. 7,020,437
----------
(Continued)
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 13.24%
United States Treasury Note ................................ $ 90,000 5.875% 08/31/99 $ 90,236
United States Treasury Note ................................ 60,000 5.500% 02/29/00 60,223
United States Treasury Note ................................ 120,000 5.125% 08/31/00 119,709
United States Treasury Note ................................ 150,000 5.000% 02/28/01 148,992
United States Treasury Note ................................ 150,000 5.625% 05/15/01 150,445
United States Treasury Note ................................ 150,000 6.500% 08/31/01 153,187
Untied States Treasury Strip ............................... 126,000 0.000% 11/15/99 123,314
Untied States Treasury Strip ............................... 128,000 0.000% 05/15/00 122,037
Untied States Treasury Strip ............................... 185,000 0.000% 11/15/00 171,404
----------
Total U.S. Government and Agency Obligations (Cost $1,147,772) .................................... 1,139,547
----------
----------
Shares
----------
INVESTMENT COMPANY - 3.61%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares
(Cost $310,535) ................................................................... 310,535 310,535
----------
Total Value of Investments (Cost $7,153,708 (b)) .............................................. 98.42% $8,470,519
Other Assets Less Liabilities ................................................................. 1.58% 136,056
------ ----------
Net Assets ............................................................................. 100.00% $8,606,575
====== ==========
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation ................................................................................. $1,667,271
Unrealized depreciation ................................................................................. (350,460)
----------
Net unrealized appreciation ................................................. $1,316,811
==========
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999
ASSETS
Investments, at value (cost $7,153,708) ......................................................... $ 8,470,519
Cash ............................................................................................ 114,719
Income receivable ............................................................................... 12,900
Prepaid expenses ................................................................................ 1,342
Deferred organization expenses, net (note 3) .................................................... 22,016
-----------
Total assets ............................................................................... 8,621,496
-----------
LIABILITIES
Accrued expenses ................................................................................ 14,921
-----------
NET ASSETS
(applicable to 831,137 shares outstanding; unlimited
shares of $0.01 par value beneficial interest authorized) ...................................... $ 8,606,575
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($8,606,575 / 831,137 shares) ................................................................... $ 10.36
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................. $ 7,694,728
Undistributed net investment income ............................................................. 6,930
Accumulated net realized loss on investments .................................................... (411,894)
Net unrealized appreciation on investments ...................................................... 1,316,811
-----------
$ 8,606,575
===========
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
STATEMENT OF OPERATIONS
For the period from June 1, 1998
(initial seed date)
to May 31, 1999
INVESTMENT INCOME
Income
Interest ..................................................................................... $ 25,745
Dividends .................................................................................... 42,567
-----------
Total income ........................................................................... 68,312
-----------
Expenses
Investment advisory fees (note 2) ............................................................ 36,288
Fund administration fees (note 2) ............................................................ 6,404
Custody fees ................................................................................. 3,671
Registration and filing administration fees (note 2) ......................................... 287
Fund accounting fees (note 2) ................................................................ 22,000
Audit fees ................................................................................... 8,500
Legal fees ................................................................................... 7,000
Securities pricing fees ...................................................................... 2,210
Shareholder recordkeeping fees ............................................................... 8,250
Other accounting fees (note 2) ............................................................... 2,424
Shareholder servicing expenses ............................................................... 4,196
Registration and filing expenses ............................................................. 3,205
Printing expenses ............................................................................ 2,882
Amortization of deferred organization expenses (note 3) ...................................... 4,984
Trustee fees and meeting expenses ............................................................ 66
Other operating expenses ..................................................................... 1,869
-----------
Total expenses ......................................................................... 114,236
-----------
Less:
Expense reimbursements (note 2) ................................................... (26,718)
Investment advisory fees waived (note 2) .......................................... (34,231)
Fund administration fees waived (note 2) .......................................... (86)
-----------
Net expenses ........................................................................... 53,201
-----------
Net investment income ............................................................. 15,111
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investment transactions .................................................... (411,894)
Increase in unrealized appreciation on investments ................................................ 1,316,811
-----------
Net realized and unrealized gain on investments .............................................. 904,917
-----------
Net increase in net assets resulting from operations ................................... $ 920,028
===========
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period from June 1, 1998
(initial seed date)
to May 31, 1999
INCREASE IN NET ASSETS
Operations
Net investment income ........................................................................... $ 15,111
Net realized loss from investment transactions .................................................. (411,894)
Increase in unrealized appreciation on investments .............................................. 1,316,811
-----------
Net increase in net assets resulting from operations ........................................ 920,028
-----------
Distribution to shareholders from
Net investment income ........................................................................... (8,181)
-----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ............................ 7,694,728
-----------
Total increase in net assets ................................................................ 8,606,575
NET ASSETS
Beginning of period ................................................................................... 0
-----------
End of period (including undistributed net investment income of $6,930) .............................. $ 8,606,575
===========
(a) A summary of capital share activity follows:
--------------------------------
Shares Value
--------------------------------
Shares sold ............................................................ 865,908 8,035,651
Shares issued for reinvestment
of distributions .................................................. 878 8,181
----------- -----------
866,786 8,043,832
Shares redeemed ........................................................ (35,649) (349,104)
----------- -----------
Net increase ...................................................... 831,137 $ 7,694,728
=========== ===========
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
For the period from June 29, 1998
(commencement of operations)
to May 31, 1999
Net asset value, beginning of period ..................................................................... $ 10.00
Income from investment operations (a)
Net investment income ........................................................................ 0.02
Net realized and unrealized gain on investments .............................................. 0.35
-----------
Total from investment operations ....................................................... 0.37
-----------
Distribution to shareholders from
Net investment income ........................................................................ (0.01)
-----------
Net asset value, end of period ........................................................................... $ 10.36
===========
Total return ............................................................................................. 3.76 %
===========
Ratios/supplemental data
Net assets, end of period ......................................................................... $ 8,606,575
===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ................................................ 2.68 % (b)
After expense reimbursements and waived fees ................................................. 1.25 % (b)
Ratio of net investment (loss) income to average net assets
Before expense reimbursements and waived fees ................................................ (1.07)% (b)
After expense reimbursements and waived fees ................................................. 0.35 % (b)
Portfolio turnover rate ........................................................................... 45.51 %
(a) Includes undistributed net investment income of $0.00 per share and undistributed net realized gains and unrealized gains of
$0.00 per share, from June 1, 1998 (seed date) through June 29, 1998 (commencement of operations).
(b) Annualized.
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The SCM Strategic Growth Fund (the "Fund") is a diversified series of
shares of beneficial interest of The SCM Investment Trust (the
"Trust"). The Trust, an open-ended investment company, was organized on
April 18, 1998 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. The investment
objective of the Fund is to provide its shareholders with a maximum
total return consisting of any combination of realized and unrealized
capital appreciation. Current income is of secondary importance. The
Fund will seek to achieve this objective by investing primarily in a
flexible portfolio of equity securities, fixed income securities, and
money market instruments. The Fund was initially seeded on June 1,
1998. The Fund had no net investment income, or net realized and
unrealized gains from the seed date through the commencement of
operations, or June 29, 1998. The following is a summary of significant
accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted on a
national market system are valued at the last sales price as of
4:00 p.m. New York time on the day of valuation. Other securities
traded in the over-the-counter market and listed securities for
which no sale was reported on that date are valued at the most
recent bid price. Securities for which market quotations are not
readily available, if any, are valued by using an independent
pricing service or by following procedures approved by the Board
of Trustees. Short-term investments are valued at cost which
approximates value.
B. Federal Income Taxes - No provision has been made for federal
income taxes since substantially all taxable income has been
distributed to shareholders. It is the policy of the Fund to
comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to make
sufficient distributions of taxable income to relieve it from all
federal income taxes.
The Fund has a capital loss carryforward for federal income tax
purposes of $411,894 which expires in the year 2007. It is the
intention of the Board of Trustees of the Trust not to distribute
any realized gains until the carryforwards have been offset or
expire.
C. Investment Transactions - Investment transactions are recorded on
the trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is recorded
on the ex-dividend date.
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, payable in March, June, September and December, on a
date selected by the Trust's Trustees. In addition, distributions
may be made annually in December out of net realized gains
through October 31 of that year. Distributions to shareholders
are recorded on the ex-dividend date. The Fund may make a
supplemental distribution subsequent to the end of its fiscal
year ending May 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts of assets, liabilities, expenses and revenues reported in
the financial statements. Actual results could differ from those
estimates.
(Continued)
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SCM STRATEGIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Shanklin Capital
Management, Inc. (the "Advisor") provides the Fund with a continuous
program of supervision of the Fund's assets, including the composition
of its portfolio, and furnishes advice and recommendations with respect
to investments, investment policies and the purchase and sale of
securities. As compensation for its services, the Advisor receives a
fee at the annual rate of 0.85% of the Fund's average daily net assets.
The Advisor intends to voluntarily waive all or a portion of its fee
and reimburse expenses of the Fund to limit total Fund operating
expenses to 1.25% of the average daily net assets of the Fund. There
can be no assurance that the foregoing voluntary fee waivers or
reimbursements will continue. The Advisor has voluntarily waived a
portion of its fee amounting to $34,231 ($0.08 per share) and has
agreed to reimburse $26,718 of the Fund's operating expenses for the
year ended May 31, 1999.
The Fund's administrator, The Nottingham Company (the "Administrator"),
provides administrative services to and is generally responsible for
the overall management and day-to-day operations of the Fund pursuant
to an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.150% of the Fund's first $100 million of average daily
net assets, and 0.125% of average daily net assets over $100 million.
The Administrator also receives a monthly fee of $2,000 for accounting
and recordkeeping services. The contract with the Administrator
provides that the aggregate fees for the aforementioned administration,
accounting and recordkeeping services shall not be less than $3,000 per
month. The Administrator also charges the Fund for certain expenses
involved with the daily valuation of portfolio securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the distributor or the Administrator.
NOTE 3 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $9,211,008 and $1,967,489, respectively, for the year ended
May 31, 1999.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The SCM Investment Trust and Shareholders of SCM
Strategic Growth Fund:
We have audited the accompanying statement of assets and liabilities of SCM
Strategic Growth Fund (the "Fund"), including the portfolio of investments, as
of May 31, 1999, and the related statement of operations for the period then
ended, the statement of changes in net assets and financial highlights for the
period from June 1, 1998 (commencement of operations) to May 31, 1999. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of May 31, 1999, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of SCM
Stategic Growth Fund as of May 31, 1999, the results of its operations for the
period then ended, the changes in its net assets and the financial highlights
for the respective stated period in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
June 18, 1999
<PAGE>
PART C
======
SCM INVESTMENT TRUST
FORM N-1A
OTHER INFORMATION
ITEM 23. Exhibits
--------
(a) Declaration of Trust.^1
(b) By-Laws.^1
(c) Certificates for shares are not issued. Articles V, VI, VIII, and X of
the Declaration of Trust, previously filed as Exhibit (a) hereto,
define the rights of holders of Shares.^1
(d) Investment Advisory Agreement between the SCM Investment Trust and
Shanklin Capital Management, Inc., as Advisor.
(e) Distribution Agreement between the SCM Investment Trust and Capital
Investment Group, Inc., as Distributor.
(f) Not Applicable.
(g) Custodian Agreement between the SCM Investment Trust and First Union
National Bank of North Carolina, as Custodian.
(h)(1) Fund Accounting and Compliance Administration Agreement between the SCM
Investment Trust and The Nottingham Company, Inc., as Administrator.
(h)(2) Dividend Disbursing and Transfer Agent Agreement between the SCM
Investment Trust and NC Shareholder Services, LLC, as Transfer Agent.
(h)(3) Expense Limitation Agreement between the SCM Investment Trust and
Shanklin Capital Management, Inc. with respect to the SCM Strategic
Growth Fund.
(i)(1) Opinion and Consent of Counsel regarding the legality of securities
being registered with respect to the SCM Strategic Growth Fund.^2
(i)(2) Consent of Dechert Price & Rhoads with respect to the SCM Strategic
Growth Fund.
(j) Consent of Deloitte & Touche LLP, Independent Public Accountants with
respect to the SCM Strategic Growth Fund.
(k) Not applicable.
(l) Initial Stock Subscription Agreement.
(m) Distribution Plan under Rule 12b-1 for the SCM Strategic Growth Fund.
(n) Not applicable.
(o) Not applicable.
(p) Copies of Power of Attorney.^2
- -----------------------
1. Incorporated herein by reference to SCM Investment Trust's Registration
Statement on Form N-1A filed April 9, 1998 (File No. 333-49831).
2. Incorporated herein by reference to SCM Investment Trust's Registration
Statement on Form N-1A filed June 24, 1998 (File No. 333-49831).
ITEM 24. Persons Controlled by or Under Common Control with the Registrant
-----------------------------------------------------------------
No person is controlled by or under common control with the SCM
Investment Trust.
ITEM 25. Indemnification
---------------
With respect to indemnification of any directors, officer, underwriter
or affiliated person of the Trust for liability incurred in those persons
official capacity, Article V, Section 5.3 of the Trust's Declaration of Trust
provides that the trustees, officers, employees or agents of the Trust in
incurring any debts, liabilities or obligations, or in taking or omitting any
other actions for or in connection with the Trust, are, and each shall be deemed
to be, acting as Trustee, officer, employee or agent of the Trust and not in his
own individual capacity. Section 5.3.1 of Article V further provides that as
long as they have acted under the belief that their actions are in the best
interest of the Trust, the trustees and officers shall not be responsible for or
liable in any event for neglect or wrongdoing by them or any officer, agent,
employee, investment advisor or principal underwriter of the Trust or of any
entity providing administrative services for the Trust, but nothing in the
Declaration of Trust shall protect any trustee or officer against any liability
to which he would otherwise be subject by reason of willful malfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office.
Section 5.4 requires the trustees to use every reasonable means to
assure that all persons having dealings with the Trust are informed that the
property of the shareholders and the trustees, officers, employees and agents of
the Trust is not subject to claims against or obligations of the Trust to any
extent whatsoever. Further, the trustees shall cause to be inserted in any
written agreement, undertaking or obligation made or issued on behalf of the
Trust (including certificates, if any, for Shares of the Trust) an appropriate
reference to this Declaration, providing that neither the shareholders, the
trustees, the officers, the employees nor any agent of the Trust shall be liable
thereunder, and that the other parties to such instrument shall look solely to
the Trust Property for the payment of any claim thereunder or for the
performance thereof; but the omission of such provisions from any such
instrument shall not render any shareholder, trustee, officer, employee or agent
liable, nor shall the trustees, or any officer, agent or employee of the Trust
be liable, to anyone for such omission. If, notwithstanding this provision, any
shareholder, trustee, officer, employee or agent shall be held liable to any
other person by reason of the omission of such provision from any such
agreement, undertaking or obligation, the shareholder, trustee, officer,
employee or agent shall be entitled to indemnity and reimbursement out of the
Trust Property.
Section 5.5.1 provides that subject to the other provisions of Article
V, every person who is or has been a trustee, officer, employee or agent of the
Trust and every person who serves at the trustees request as director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall be indemnified by the Trust to the fullest extent
permitted by law against all liabilities and against all expenses reasonably
incurred or paid by him in connection with any debt, claim, action, demand,
suit, proceeding, judgment, decree, liability or obligation of any kind in which
he becomes involved as a party or otherwise or is threatened by virtue of his
being or having been a trustee, officer, employee or agent of the Trust or of
another corporation, partnership, joint venture, trust or other enterprise at
the request of the Trust and against amounts paid or incurred by him in the
compromise or settlement thereof.
Section 5.5.3 provides that there shall be no indemnification to a
trustee or officer: (i) against any liability to the Trust or the shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office ("disabling
conduct"); and (ii) with respect to any matter as to which he shall, by the
court or other body by or before which the proceeding was brought or engaged,
have been finally adjudicated to be liable by reason of disabling conduct.
However, in the absence of a final adjudication on the merits that a trustee or
officer did not engage in disabling conduct, the indemnification provisions of
Article V shall be available to such trustee or officer if a reasonable
determination is made, based upon a review of the facts, that such trustee or
officer to be indemnified is not liable by reason of such conduct; such
determination must be made by a vote of a majority of a quorum of the Trustees
who are neither Interested Persons nor parties to the proceedings, or by
independent legal counsel, in a written opinion.
Expenses in connection with the preparation and presentation of a defense
to any claim, action, suit or proceeding of the character described above may be
paid by the Trust prior to final disposition thereof upon receipt of a written
undertaking by or on behalf of the trustee, officer, employee or agent to
reimburse the Trust if it is ultimately determined that he is not entitled to
indemnification. Such undertaking shall be secured by a surety bond or other
suitable insurance or such security as the Trustees shall require unless a
majority of a quorum of the Trustees who are neither Interested Persons nor
parties to the proceeding, or independent legal counsel in a written opinion,
shall have determined, based on readily available facts, that there is reason to
believe that the indemnitee ultimately will be found to be entitled to
indemnification.
ITEM 26. Business and other Connections of the Investment Advisor
--------------------------------------------------------
The description of Shanklin Capital Management, Inc. under the caption of
Management of the Fund - The Investment Advisor" in the Prospectus and under the
caption "Management and Other Service Providers - The Investment Advisor" in the
Statement of Additional Information constituting Parts A and B, respectively, of
this Registration Statement are incorporated by reference herein. Information
concerning the directors and officers of Shanklin Capital Management, Inc. as
set forth in the Form ADV filed with the Securities and Exchange Commission, is
incorporated by reference herein.
ITEM 27. Principal Underwriter
---------------------
(a) Capital Investment Group, Inc., the Registrant's distributor, is also
the underwriter and distributor for The Chesapeake Aggressive Growth
Fund, The Chesapeake Growth Fund, The Chesapeake Core Growth Fund, WST
Growth & Income Fund, The CarolinasFund, Capital Value Fund, Investek
Fixed Income Trust, The Brown Capital Management Equity Fund, The Brown
Capital Management Balanced Fund, The Brown Capital Management Small
Company Fund, The Brown Capital Management International Equity Fund,
Blue Ridge Total Return Fund, New Providence Capital Growth Fund, and
Wisdom Fund.
(b) Set forth below is certain information regarding the directors and
officers of Capital Investment Group, Inc.
POSITION(S) AND OFFICE(S)
NAME AND PRINCIPAL WITH CAPITAL INVESTMENT POSITION(S) AND OFFICE(S)
BUSINESS ADDRESS GROUP, INC. WITH REGISTRANT
================== ========================= =========================
Richard K. Bryant President NONE
17 Glenwood Avenue
Raleigh, N.C.
E.O. Edgerton, Jr. Vice President NONE
17 Glenwood Avenue
Raleigh, N.C.
(c) Not applicable.
ITEM 28. Location of Accounts and Records
--------------------------------
All account books and records not normally held by First Union National
Bank of North Carolina, the Custodian to the SCM Investment Trust, are held by
the SCM Investment Trust, in the offices of The Nottingham Company, Inc., Fund
Accountant and Administrator; NC Shareholder Services, LLC, Transfer Agent; or
Shanklin Capital Management, Inc., Investment Advisor to the SCM Strategic
Growth Fund.
The address of The Nottingham Company, Inc. is 105 North Washington
Street, Post Office Box 69, Rocky Mount, North Carolina 27802-0069. The address
of NC Shareholder Services, LLC is 107 North Washington Street, Post Office Box
4365, Rocky Mount, North Carolina 27803-0365. The address of Shanklin Capital
Management, Inc. is 1420 Osborne Street, Suite B16, Humboldt, Tennessee 38343.
The address of First Union National Bank of North Carolina is Two First Union
Center, Charlotte, North Carolina 28288-1151.
ITEM 29. Management Services
-------------------
Not Applicable.
ITEM 30. Undertakings
------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
("Securities Act"), and the Investment Company Act of 1940, as amended, the
Registrant certifies that it meets all the requirements for effectiveness of
this registration statement under Rule 485(a) under the Securities Act and has
duly caused this Post-Effective Amendment No. 1 to its Registration Statement to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Rocky Mount, and State of North Carolina on this 2nd day of August, 1999.
SCM INVESTMENT TRUST
By: /S/ C. Frank Watson, III
___________________________
C. Frank Watson, III
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
* Trustee and Chairman August 2, 1999
___________________________
Dan P. Shanklin
* Trustee and President August 2, 1999
___________________________
Tim L. Shanklin
* Trustee August 2, 1999
___________________________
Michael A. Farris
* Trustee August 2, 1999
___________________________
David R. Reed
* Trustee August 2, 1999
___________________________
Mark A. Simmons
/s/ Julian G. Winters Treasurer August 2, 1999
___________________________
Julian G. Winters
* By: /s/ C. Frank Watson, III Dated: August 2, 1999
___________________________
C. Frank Watson, III
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
(FOR POST-EFFECTIVE AMENDMENT NO. 1)
____________________________________
EXHIBIT NO.
UNDER PART C
OF FORM N-1A NAME OF EXHIBIT
- ------------ -------------------------
(d) Investment Advisory Agreement
(e) Distribution Agreement
(g) Custodian Agreement
(h)(1) Fund Accounting and Compliance Administration Agreement
(h)(2) Dividend Disbursing and Transfer Agent Agreement
(h)(3) Expense Limitation Agreeement
(i)(2) Consent of Dechert Price & Rhoads
(j) Consent of Deloitte & Touche LLP
(l) Initial Stock Subscription Agreement
(m) Distribution Plan under Rule 12b-1
Exhibit (d): Investment Advisory Agreement
------------
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, entered into as of the date the registration statement of the
SCM Strategic Growth Fund of the SCM Investment Trust becomes effective with the
Securities and Exchange Commission, by and between SCM INVESTMENT TRUST (the
"Trust"), a Massachusetts Business Trust, and SHANKLIN CAPITAL MANAGEMENT, Inc.,
a Tennessee corporation (the "Advisor"), registered as an investment advisor
under the Investment Advisors Act of 1940, as amended (the "Advisors Act").
WHEREAS, the Trust is registered as a diversified, open-end management
investment company of the series type under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Advisor to furnish investment advisory
and administrative services to SCM STRATEGIC GROWTH FUND series of the Trust,
and the Advisor is willing to so furnish such services;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Advisor to act as Investment
Advisor to SCM STRATEGIC GROWTH FUND (the "Fund") series of the Trust for
the period and on the terms set forth in this Agreement. The Advisor
accepts such appointment and agrees to furnish the services herein set
forth, for the compensation herein provided.
2. Delivery of Documents. The Trust has furnished the Investment Advisor with
copies properly certified or authenticated of each of the following:
(a) The Trust's Declaration of Trust, as filed with the State of
Massachusetts (such Declaration, as presently in effect and as it
shall from time to time be amended, is herein called the
"Declaration");
(b) The Trust's By-Laws (such By-Laws, as presently in effect and as they
shall from time to time be amended, are herein called the "By-Laws");
(c) Resolutions of the Trust's Board of Trustees and the resolution
approved by a majority of the outstanding shares of the Fund
authorizing the appointment of the Advisor and approving this
Agreement;
(d) The Trust's Registration Statement on Form N-1A under the 1940 Act and
under the Securities Act of 1933 as amended, (the "1933 Act"),
relating to shares of beneficial interest of the Fund (herein called
the "Shares") as filed with the Securities and Exchange Commission
("SEC") and all amendments thereto;
(e) The Fund's Prospectus (such Prospectus, as presently in effect and all
amendments and supplements thereto are herein called the
"Prospectus").
The Trust will furnish the Advisor from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing at the same time as such documents are required to be filed with
the SEC.
3. Management. Subject to the supervision of the Trust's Board of Trustees,
the Advisor will provide a continuous investment program for the Fund,
including investment research and management with respect to all
securities, investments, cash and cash equivalents in the Fund. The Advisor
will determine from time to time what securities and other investments will
be purchased, retained or sold by the Fund. The Advisor will provide the
services under this Agreement in accordance with the Fund's investment
objectives, policies and restrictions as stated in its Prospectus. The
Advisor further agrees that it: (a) Will conform its activities to all
applicable Rules and Regulations of the Securities and Exchange Commission
and will, in addition, conduct its activities under this Agreement in
accordance with regulations of any other Federal and State agencies which
may now or in the future have jurisdiction over its activities under this
Agreement;
(b) Will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer. In
placing orders with brokers or dealers, the Advisor will attempt to
obtain the best net price and the most favorable execution of its
orders. Consistent with this obligation, when the Advisor believes two
or more brokers or dealers are comparable in price and execution, the
Advisor may prefer: (i) brokers and dealers who provide the Fund with
research advice and other services, or who recommend or sell Trust
shares, and (ii) brokers who are affiliated with the Fund or its
Advisor; provided, however, that in no instance will portfolio
securities be purchased from or sold to the Advisor or any affiliated
person of the Advisor in principal transactions;
(c) Will provide certain executive personnel for the Fund as may be
mutually agreed upon from time to time with the Board of Trustees, the
salaries and expenses of such personnel to be borne by the Advisor
unless otherwise mutually agreed upon; and
(d) Will provide, at its own cost, all office space, facilities and
equipment necessary for the conduct of its advisory activities on
behalf of the Fund.
4. Services Not Exclusive. The advisory services furnished by the Advisor
hereunder are not to be deemed exclusive, and the Advisor shall be free to
furnish similar services to others so long as its services under this
Agreement are not impaired thereby; provided, however, that without the
written consent of the Trustees, the Advisor will not serve as investment
advisor to any other investment company having a similar investment
objective to that of the Fund.
5. Books and Records. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Advisor hereby agrees that all records which it maintains
for the benefit of the Fund are the property of the Fund and further agrees
to surrender promptly to the Fund any of such records upon the Fund's
request. The Advisor further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by
it pursuant to Rule 31a-1 under the 1940 Act that are not maintained by
others on behalf of the Fund.
6. Expenses. During the term of this Agreement, the Advisor will pay all
expenses incurred by it in connection with its investment advisory services
pertaining to the Fund. In the event that there is no distribution plan
under Rule 12b-1 of the 1940 Act in effect for the Fund, the Advisor will
pay, out of the Advisor's resources generated from sources other than fees
received from the Fund, the entire cost of the promotion and sale of Trust
shares.
Notwithstanding the foregoing, the Fund shall pay the expenses and costs of
the following:
(a) Taxes, interest charges and extraordinary expenses;
(b) Brokerage fees and commissions with regard to portfolio
transactions of the Fund;
(c) Fees and expenses of the custodian of the Fund's portfolio
securities;
(d) Fees and expenses of the Fund's administrator, transfer and
dividend disbursing agent and the Fund's fund accounting agent
or, if the Fund performs any such services without an agent, the
costs of the same;
(e) Auditing and legal expenses;
(f) Cost of maintenance of the Fund's existence as a legal entity;
(g) Compensation of trustees who are not interested persons of the
Advisor as law defines that term;
(h) Costs of Trust meetings; (i) Federal and State registration or
qualification fees and expenses;
(j) Costs of setting in type, printing and mailing Prospectuses,
reports and notices to existing shareholders;
(k) The investment advisory fee payable to the Advisor, as provided
in paragraph 7 herein; and
(l) Plan of Distribution expenses, but only in accordance with the
Plan of Distribution as approved by the shareholders of the Fund.
7. Compensation. The Trust will pay the Advisor and the Advisor will accept as
full compensation an investment advisory fee, based upon the daily average
net assets of each Fund, computed at the end of each month and payable
within five (5) business days thereafter, based upon the schedule attached
hereto as Exhibit A.
8.(a)Limitation of Liability. The Advisor shall not be liable for any error of
judgment, mistake of law or for any other loss whatsoever suffered by the
Fund in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Advisor in the performance of
its duties or from reckless disregard by it of its obligations and duties
under this Agreement.
8.(b)Indemnification of Advisor. Subject to the limitations set forth in this
Subsection 8(b), the Fund shall indemnify, defend and hold harmless (from
the assets of the Trust or Trusts to which the conduct in question relates)
the Advisor against all loss, damage and liability, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and expenses, including reasonable accountants' and
counsel fees, incurred by the Advisor in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or legislative body, related
to or resulting from this Agreement or the performance of services
hereunder, except with respect to any matter as to which it has been
determined that the loss, damage or liability is a direct result of (i) a
breach of fiduciary duty with respect to the receipt of compensation for
services; or (ii) willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from reckless
disregard by it of its duties under this Agreement (either and both of the
conduct described in clauses (i) and (ii) above being referred to
hereinafter as "Disabling Conduct"). A determination that the Advisor is
entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that
the Advisor was not liable by reason of Disabling Conduct, (ii) dismissal
of a court action or an administrative proceeding against the Advisor for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the Advisor was not
liable by reason of Disabling Conduct by, (a) vote of a majority of a
quorum of Trustees who are neither "interested persons" of the Fund as the
quoted phrase is defined in Section 2(a)(19) of the 1940 Act nor parties to
the action, suit or other proceeding on the same or similar grounds that is
then or has been pending or threatened (such quorum of such Trustees being
referred to hereinafter as the "Independent Trustees"), or (b) an
independent legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by the Advisor (but excluding
amounts paid in satisfaction of judgments, in compromise or as fines or
penalties), may be paid from time to time by the Fund or Trust to which the
conduct in question related in advance of the final disposition of any such
action, suit or proceeding; provided, that the Advisor shall have
undertaken to repay the amounts so paid if it is ultimately determined that
indemnification of such expenses is not authorized under this Subsection
8(b) and if (i) the Advisor shall have provided security for such
undertaking, (ii) the Fund shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of the Independent
Trustees, or an independent legal counsel in a written opinion, shall have
determined, based on a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe that the Advisor
ultimately will be entitled to indemnification hereunder.
As to any matter disposed of by a compromise payment by the Advisor
referred to in this Subsection 8(b), pursuant to a consent decree or
otherwise, no such indemnification either for said payment or for any other
expenses shall be provided unless such indemnification shall be approved
(i) by a majority of the Independent Trustees or (ii) by an independent
legal counsel in a written opinion. Approval by the Independent Trustees
pursuant to clause (i) shall not prevent the recovery from the Advisor of
any amount paid to the Advisor in accordance with either of such clauses as
indemnification of the Advisor is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable
belief that the Advisor's action was in or not opposed to the best interest
of the Fund or to have been liable to the Fund or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in its conduct under the Agreement.
The right of indemnification provided by this Subsection 8(b) shall not be
exclusive of or affect any of the rights to which the Advisor may be
entitled. Nothing contained in this Subsection 8(b) shall affect any rights
to indemnification to which Trustees, officers or other personnel of the
Fund, and other persons may be entitled by contract or otherwise under law,
nor the power of the Fund to purchase and maintain liability insurance on
behalf of any such person.
The Board of Trustees of the Trust shall take all such action as may be
necessary and appropriate to authorize the Fund hereunder to pay the
indemnification required by this Subsection 8(b) including, without
limitation, to the extent needed, to determine whether the Advisor is
entitled to indemnification hereunder and the reasonable amount of any
indemnity due it hereunder, or employ independent legal counsel for that
purpose.
8.(c)The provisions contained in Section 8 shall survive the expiration or
other termination of this Agreement, shall be deemed to include and protect
the Advisor and its directors, officers, employees and agents and shall
inure to the benefit of its/their respective successors, assigns and
personal representatives.
9. Duration and Termination. This Agreement shall become effective upon the
date the registration statement of the Trust containing the Fund's
Prospectus is declared effective by the Securities and Exchange Commission
and, unless sooner terminated as provided herein, shall continue in effect
for two years. Thereafter, this Agreement shall be renewable for successive
periods of one year each, provided such continuance is specifically
approved annually:
(a) By the vote of a majority of those members of the Board of Trustees
who are not parties to this Agreement or interested persons of any
such party (as that term is defined in the 1940 Act), cast in person
at a meeting called for the purpose of voting on such approval; and
(b) By vote of either the Board of Trustees or a majority (as that term is
defined in the 1940 Act) of the outstanding voting securities of the
Fund.
Notwithstanding the foregoing, this Agreement may be terminated by the Fund
or by the Advisor at any time on sixty (60) days' written notice, without
the payment of any penalty, provided that termination by the Fund must be
authorized either by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund. This Agreement will
automatically terminate in the event of its assignment (as that term is
defined in the 1940 Act).
10. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by a written instrument
signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a majority of
the Fund's outstanding voting securities (as defined in the 1940 Act).
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect. If any provision
of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of the Agreement shall not be
affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.
12. Applicable Law. This Agreement shall be construed in accordance with, and
governed by, the laws of the State of North Carolina.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
ATTEST: SCM INVESTMENT TRUST
By: /s/ C. Frank Watson, III By: /s/ Michael A. Farris
_____________________________ _____________________________
Title: Secretary Title: Trustee
__________________________ __________________________
ATTEST: SHANKLIN CAPITAL MANAGEMENT, INC.
By: /s/ Tim L. Shanklin By: /s/ Dan P. Shanklin
_____________________________ _____________________________
Title: President Title: Chairman
__________________________ __________________________
<PAGE>
EXHIBIT A
INVESTMENT ADVISOR'S COMPENSATION SCHEDULE
For the services delineated in the INVESTMENT ADVISORY AGREEMENT, the Investment
Advisor shall be compensated monthly, as of the last day of each month, within
five business days of the month end, a fee based upon the daily average net
assets of the Fund according to the following schedule.
Annual
Net Assets Fee
---------------- -------
On all Assets 0.85%
Exhibit (e): Distribution Agreement
------------
DISTRIBUTION AGREEMENT
AGREEMENT made effective as of the date the registration statement of the SCM
Strategic Growth Fund of the SCM Investment Trust becomes effective with the
Securities and Exchange Commission, by and between SCM INVESTMENT TRUST, an
unincorporated business trust organized under the laws of The Commonwealth of
Massachusetts (the "Trust"), and CAPITAL INVESTMENT GROUP, INC., a North
Carolina corporation ("Distributor").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is so registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest (the "Shares"), in separate series representing the
interests in separate funds of securities and other assets; and
WHEREAS, the Trust offers a series of such Shares representing interests in the
SCM STRATEGIC GROWTH FUND (the "Fund") of the Trust, and has registered the
Shares under the Securities Act of 1933, as amended (the "1933 Act"), pursuant
to a registration statement on Form N-1A (the "Registration Statement"),
including a prospectus (the "Prospectus") and a statement of additional
information (the "Statement of Additional Information"); and
WHEREAS, Distributor has agreed to act as distributor of the Shares of the Fund
for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1) Appointment of Distributor.
a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of the Shares of the Fund in jurisdictions wherein such
Shares may be legally offered for sale; provided, however, that the
Trust in its absolute discretion may issue Shares of the Fund in
connection with (i) the payment or reinvestment of dividends or
distributions; (ii) any merger or consolidation of the Trust or of the
Fund with any other investment company or trust or any personal holding
company, or the acquisition of the assets of any such entity or another
fund of the Trust; or (iii) any offer of exchange permitted by Section
11 of the 1940 Act.
b) Distributor hereby accepts such appointment as exclusive agent for the
distribution of the Shares of the Fund and agrees that it will sell the
Shares as agent for the Trust at prices determined as hereinafter
provided and on the terms hereinafter set forth, all according to
applicable federal and state laws and regulations and to the Agreement
and Declaration of Trust of the Trust.
c) Distributor may sell Shares of the Fund to or through qualified
securities dealers or others. Distributor will require each dealer or
other such party to conform to the provisions hereof, the Registration
Statement and the Prospectus and Statement of Additional Information,
and applicable law; and neither Distributor nor any such dealers or
others shall withhold the placing of purchase orders for Shares so as
to make a profit thereby.
d) Distributor shall order Shares of the Fund from the Trust only to the
extent that it shall have received purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make:
(i) any short sales of Shares; or (ii) any sales of Shares to any
Trustee or officer of the Trust or to any officer or director of
Distributor or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Trust, or to any
such corporation or association, unless such sales are made in
accordance with the then current Prospectus and Statement of Additional
Information.
e) Distributor is not authorized by the Trust to give any information or
make any representations regarding the Shares of the Fund, except such
information or representations as are contained in the Registration
Statement or in the current Prospectus or Statement of Additional
Information of the Fund, or in advertisements and sales literature
prepared by or on behalf of the Trust for Distributor's use.
f) Notwithstanding any provision hereof, the Trust may terminate, suspend
or withdraw the offering of Shares of the Fund whenever, in its sole
discretion, it deems such action to be desirable.
2) Offering Price of Shares. All Fund Shares sold under this Agreement shall
be sold at the public offering price per Share in effect at the time of the
sale, as described in the then current Prospectus of the Fund. The excess,
if any, of the public offering price over the net asset value of the Shares
sold by Distributor as agent shall be retained by Distributor as a
commission for its services hereunder. Out of such commission Distributor
may allow commissions or concessions to dealers and may allow them to
others in its discretion in such amounts as Distributor shall determine
from time to time. Except as may be otherwise determined by Distributor
from time to time, such commissions or concessions shall be uniform to all
dealers. At no time shall the Trust receive less than the full net asset
value of the Shares, determined in the manner set forth in the then current
Prospectus and Statement of Additional Information. Distributor shall also
be entitled to such commissions and other fees and payments as may be
authorized by the Trust from time to time under a Distribution Plan.
3) Furnishing of Information. The Trust shall furnish to Distributor copies of
any information, financial statements and other documents that Distributor
may reasonably request for use in connection with the sale of Shares of the
Fund under this Agreement. The Trust shall also make available a sufficient
number of copies of the Fund's current Prospectus and Statement of
Additional Information for use by the Distributor.
4) Expenses.
a) The Trust will pay or cause to be paid the following expenses: (i)
preparation, printing and distribution to shareholders of the
Prospectus and Statement of Additional Information; (ii) preparation,
printing and distribution of reports and other communications to
shareholders; (iii) registration of the Shares under the federal
securities laws; (iv) qualification of the Shares for sale in certain
states; (v) qualification of the Trust as a dealer or broker under
state law as well as qualification of the Trust as an entity
authorized to do business in certain states; (vi) maintaining
facilities for the issue and transfer of Shares; (vii) supplying
information, prices and other data to be furnished by the Trust under
this Agreement; and (viii) certain taxes applicable to the sale or
delivery of the Shares or certificates therefor.
b) Except to the extent such expenses are borne by the Advisor or by the
Trust pursuant to a Distribution Plan, Distributor will pay or cause
to be paid the following expenses: (i) payments to sales
representatives of the Distributor and to securities dealers and
others in respect of the sale of Shares of the Fund; (ii) payment of
compensation to and expenses of employees of the Distributor and any
of its affiliates to the extent they engage in or support distribution
of Fund Shares or render shareholder support services not otherwise
provided by the Trust's transfer agent, administrator, or custodian,
or any sub-transfer agent, administrator, or custodian, including, but
not limited to, answering routine inquiries regarding the Fund,
processing shareholder transactions, and providing such other
shareholder services as the Trust may reasonably request; (iii)
formulation and implementation of marketing and promotional
activities, including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other mass media
advertising; (iv) preparation, printing and distribution of sales
literature and of Prospectuses and Statements of Additional
Information and reports of the Trust for recipients other than
existing shareholders of the Fund; and (v) obtaining such information,
analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, reasonably request.
c) Distributor, in connection with any Distribution Plan that may be
authorized by the Trust from time to time, shall prepare and deliver
reports to the Trustees of the Trust on a regular basis, at least
quarterly, showing the expenditures with respect to the Fund pursuant
to the Distribution Plan and the purposes therefor, as well as any
supplemental reports as the Trustees of the Trust, from time to time,
may reasonably request.
5) Repurchase of Shares. Distributor as agent and for the account of the Trust
may repurchase Shares of the Fund offered for resale to it and redeem such
Shares at their net asset value.
6) Indemnification by the Trust. In absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder
on the part of Distributor, the Trust agrees to indemnify Distributor and
its officers and partners against any and all claims, demands, liabilities
and expenses that Distributor may incur under the 1933 Act, or common law
or otherwise, arising out of or based upon any alleged untrue statement of
a material fact contained in the Registration Statement or any Prospectus
or Statement of Additional Information of the Fund, or in any
advertisements or sales literature prepared by or on behalf of the Trust
for Distributor's use, or any omission to state a material fact therein,
the omission of which makes any statement contained therein misleading,
unless such statement or omission was made in reliance upon and in
conformity with information furnished to the Trust in connection therewith
by or on behalf of Distributor. Nothing herein contained shall require the
Trust to take any action contrary to any provision of its Agreement and
Declaration of Trust or any applicable statute or regulation.
7) Indemnification by Distributor. Distributor agrees to indemnify the Trust
and its officers and Trustees against any and all claims, demands,
liabilities and expenses which the Trust may incur under the 1933 Act, or
common law or otherwise, arising out of or based upon (i) any alleged
untrue statement of a material fact contained in the Registration Statement
or any Prospectus or Statement of Additional Information of the Fund, or in
any advertisements or sales literature prepared by or on behalf of the
Trust for Distributor's use, or any omission to state a material fact
therein, the omission of which makes any statement contained therein
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished to the Trust in connection therewith
by or on behalf of Distributor; or (ii) any act or deed of Distributor or
its sales representatives, or securities dealers and others authorized to
sell Fund Shares hereunder, or their sales representatives, that has not
been authorized by the Trust in any Prospectus or Statement of Additional
Information of the Fund or by this Agreement.
8) Term and Termination.
a) This Agreement shall become effective on the date the registration
statement of the Trust containing the Fund's Prospectus is declared
effective by the Securities and Exchange Commission and, unless sooner
terminated as provided herein, shall continue in effect for two years.
Unless terminated as herein provided, this Agreement shall continue in
full force and effect for successive periods of one year thereafter,
but only so long as each such continuance is approved (i) by either
the Trustees of the Trust or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund and, in
either event, (ii) by vote of a majority of the Trustees of the Trust
who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party and who have no direct or
indirect financial interest in this Agreement or in the operation of
the Distribution Plan or in any agreement related thereto
("Independent Trustees"), cast at a meeting called for the purpose of
voting on such approval.
b) This Agreement may be terminated at any time without the payment of
any penalty by vote of the Trustees of the Trust or a majority of the
Independent Trustees or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund or by
Distributor, on sixty days' written notice to the other party.
c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9) Limitation of Liability. The obligations of the Trust hereunder shall not
be binding upon any of the Trustees, officers or shareholders of the Trust
personally, but shall bind only the assets and property of the Trust. The
term "SCM Investment Trust" means and refers to the Trustees from time to
time serving under the Agreement and Declaration of Trust of the Trust, a
copy of which is on file with the Secretary of the Commonwealth of
Massachusetts. The execution and delivery of this Agreement has been
authorized by the Trustees, and this Agreement has been signed on behalf of
the Trust by an authorized officer of the Trust, acting as such and not
individually, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them
personally, but shall bind only the assets and property of the Trust as
provided in the Agreement and Declaration of Trust.
<PAGE>
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above.
SCM INVESTMENT TRUST
Attest: /S/ C. Frank Watson, III By: /s/ Dan P. Shanklin
___________________________ ___________________________
SCM STRATEGIC GROWTH FUND
Attest: /s/ C. Frank Watson, III By: /s/ Tim L. Shanklin
___________________________ ___________________________
CAPITAL INVESTMENT GROUP, INC.
Attest: By: /s/ Richard K. Bryant
___________________________ ___________________________
Exhibit (g): Custodian Agreement
------------
CUSTODY AGREEMENT
(Mutual Funds)
THIS AGREEMENT is made as of JUNE 18, 1998, by and between SCM INVESTMENT TRUST
(the "Trust"), a Massachusetts business trust, with respect to its existing
series as of the date of this Agreement, and such other series as shall be
designated from time to time by the Trust (the "Fund" or "Funds"), and FIRST
UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association (the
"Custodian").
The Trust desires that its securities and funds shall be hereafter held and
administered by the Custodian pursuant to the terms of this Agreement, and,
pursuant to separate agreements, The Nottingham Company, Inc., a North Carolina
corporation ("Nottingham"), has agreed to perform the duties of Accounting
Services Agent and Administrator for the Fund, and NC Shareholder Services, LLC,
a North Carolina limited liability company ("NCSS"), has agreed to perform the
duties of Transfer Agent and Dividend Disbursing Agent for the Fund.
In consideration of the mutual agreements herein, the Trust and the Custodian
agree as follows:
1. DEFINITIONS.
As used herein, the following words and phrases shall have the meanings
shown in this Section 1:
"Securities" includes stocks, shares, bonds, debentures, bills, notes,
mortgages, certificates of deposit, bank time deposits, bankers'
acceptances, commercial paper, scrip, warrants, participation certificates,
evidences of indebtedness, or other obligations and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase, or subscribe for the same, or evidencing or representing any
other rights or interests therein, or in any property or assets.
"Oral Instructions" shall mean an authorization, instruction, approval,
item or set of data, or information of any kind transmitted to the
Custodian in person or by telephone, telegram, telecopy or other mechanical
or documentary means lacking original signature, by an officer or employee
of the Trust, an employee of Nottingham in its capacity as Accounting
Services Agent and Administrator, or an employee of NCSS in its capacity as
Transfer Agent and Dividend Disbursing Agent, who has been authorized by a
resolution of the Board of Trustees of the Trust or the Board of Directors
of Nottingham or NCSS, as the case may be, to give Written Instructions on
behalf of the Trust.
"Written Instructions" shall mean an authorization, instruction, approval,
item or set of data, or information of any kind transmitted to the
Custodian containing original signatures or a copy of such document
transmitted by telecopy including transmission of such signature,
reasonably believed by the Custodian to be the signature of an officer or
employee of the Trust, an employee of Nottingham in its capacity as
Accounting Services Agent and Administrator, or an employee of NCSS in its
capacity as Transfer Agent and Dividend Disbursing Agent, who has been
authorized by a resolution of the Board of Trustees of the Trust or Board
of Directors of Nottingham or NCSS, as the case may be, to give Written
Instructions on behalf of the Trust.
"Securities Depository" shall mean a system for the central handling of
securities where all securities of any particular class or series of any
issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of
securities.
"Officers' Certificate" shall mean a direction, instruction or
certification in writing signed in the name of the Trust by the President,
Secretary or Assistant Secretary, or the Treasurer or Assistant Treasurer
of the Trust, or any other persons duly authorized to sign by the Board of
Trustees or the Executive Committee of the Trust.
"Book-Entry Securities" shall mean securities issued by the Treasury of the
United States of America and federal agencies of the United States of
America which are maintained in the book-entry system as provided in
Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR
Part 350, and the book-entry regulations of federal agencies substantially
in the form of Subpart O, and the term Book-Entry Account shall mean an
account maintained by a Federal Reserve Bank in accordance with the
aforesaid Circular and regulations.
2. DOCUMENTS TO BE FILED BY TRUST.
The Trust shall from time to time file with the Custodian a certified copy
of each resolution of its Board of Trustees authorizing execution of
Written Instructions and the number of signatories required, together with
certified signatures of the officers and other signatories authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and other signatories designated therein to act, and shall be
considered in full force and effect and the Custodian shall be fully
protected in acting in reliance thereon until it receives a new certified
copy of a resolution adding or deleting a person or persons with authority
to give Written Instructions. If the certifying officer is authorized to
sign Written Instructions, the certification shall also be signed by a
second officer of the Trust. The Trust also agrees that the Custodian may
rely on Written Instructions received from Nottingham and/or NCSS, as agent
for the Trust, if those Written Instructions are given by persons having
authority pursuant to resolutions of the Board of Trustees of the Trust.
The Trust shall from time to time file with the Custodian a certified copy
of each resolution of the Board of Trustees authorizing the transmittal of
Oral Instructions and specifying the person or persons authorized to give
Oral Instructions in accordance with this Agreement. The Trust agrees that
the Custodian may rely on Oral Instructions received from Nottingham and/or
NCSS, as agent for the Trust, if those instructions are given by persons
reasonably believed by the Custodian to have such authority. Any resolution
so filed with the Custodian shall be considered in full force and effect
and the Custodian shall be fully protected in acting in reliance thereon
until it actually receives a new certified copy of a resolution adding or
deleting a person or persons with authority to give Oral Instructions. If
the certifying officer is authorized to give Oral Instructions, the
certification shall also be signed by a second officer of the Trust.
3. RECEIPT AND DISBURSEMENT OF FUNDS.
(a) The Custodian shall open and maintain a separate account or accounts
in the name of each Fund of the Trust, subject only to draft or order
by the Custodian acting pursuant to the terms of this Agreement. The
Custodian shall hold in safekeeping in such account or accounts,
subject to the provisions hereof, all funds received by it from or for
the account of the Trust. The Trust will deliver or cause to be
delivered to the Custodian all funds owned by the Trust, including
cash received for the issuance of its shares during the period of this
Agreement. The Custodian shall make payments of funds to, or for the
account of, the Trust from such funds only:
(i) for the purchase of securities for the portfolio of the Trust upon the
delivery of such securities to the Custodian (or to any bank, banking
firm or trust company doing business in the United States and
designated by the Custodian as its sub-custodian or agent for this
purpose or any foreign bank qualified under Rule 17f-5 of the
Investment Company Act of 1940 and acting as sub-custodian),
registered (if registerable) in the name of the Trust or of the
nominee of the Custodian referred to in Section 8 or in proper form
for transfer, or, in the case of repurchase agreements entered into
between the Trust and the Custodian or other bank or broker dealer (A)
against delivery of the securities either in certificate form or
through an entity crediting the Custodian's account at the Federal
Reserve Bank with such securities or (B) upon delivery of the receipt
evidencing purchase by the Trust of securities owned by the Custodian
along with written evidence of the agreement by the Custodian bank to
repurchase such securities from the Trust;
(ii) for the payment of interest, dividends, taxes, management or
supervisory fees, or operating expenses (including, without
limitation, Board of Trustees' fees and expenses, and fees for legal,
accounting and auditing services) and for redemption or repurchase of
shares of the Trust;
(iii)for payments in connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Trust held by or to be
delivered to the Custodian;
(iv) for the payment to any bank of interest on all or any portion of the
principal of any loan made by such bank to the Trust;
(v) for the payment to any person, firm or corporation who has borrowed
the Trust's portfolio securities the amount deposited with the
Custodian as collateral for such borrowing upon the delivery of such
securities to the Custodian, registered (if registerable) in the name
of the Trust or of the nominee of the Custodian referred to in Section
8 or in proper form for transfer; or
(vi) for other proper purposes of the Trust.
Before making any such payment the Custodian shall receive (and may rely
upon) Written Instructions or Oral Instructions directing such payment and
stating that it is for a purpose permitted under the terms of this
subsection (a). In respect of item (vi), the Custodian will take such
action only upon receipt of an Officers' Certificate and a certified copy
of a resolution of the Board of Trustees or the Executive Committee of the
Trust signed by an officer of the Trust and certified by the Secretary or
an Assistant Secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made. In respect of item
(v), the Custodian shall make payment to the borrower of securities loaned
by the Trust of part of the collateral deposited with the Custodian upon
receipt of Written Instructions from the Trust or Nottingham stating that
the market value of the securities loaned has declined and specifying the
amount to be paid by the Custodian without receipt or return of any of the
securities loaned by the Trust. In respect of item (i), in the case of
repurchase agreements entered into with a bank which is a member of the
Federal Reserve System, the Custodian may transfer funds to the account of
such bank, which may be itself, prior to receipt of written evidence that
the securities subject to such repurchase agreement have been transferred
by book-entry to the Custodian's non-proprietary account at the Federal
Reserve Bank, or in the case of repurchase agreements entered into with the
Custodian, of the safekeeping receipt and repurchase agreement, provided
that such securities have in fact been so transferred by book-entry, or in
the case of repurchase agreements entered into with the Custodian, the
safekeeping receipt is received prior to the close of business on the same
day.
(b) Notwithstanding anything herein to the contrary, the Custodian may at
any time or times with the written approval of the Board of Trustees,
appoint (and may at any time remove without the written approval of
the Trust) any other bank or trust company as its sub-custodian or
agent to carry out such of the provisions of Subsection (a) of this
Section 3 as instructions from the Trust may from time to time
request; provided, however, that the appointment of such sub-custodian
or agent shall not relieve the Custodian of any of its
responsibilities hereunder; and provided, further, that the Custodian
shall not enter into any arrangement with any subcustodian unless such
sub-custodian meets the requirements of Section 26 of the Investment
Company Act of 1940 and Rule 17f-5 thereunder, if applicable.
(c) The Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by the
Custodian for the accounts of the Trust.
4. RECEIPT OF SECURITIES.
(a) The Custodian shall hold in safekeeping in a separate account, and
physically segregated at all times from those of any other persons,
firms, corporations or trusts or any other series of the Trust,
pursuant to the provisions hereof, all securities received by it from
or for the account of each series of the Trust, and the Trust will
deliver or cause to be delivered to the Custodian all securities owned
by the Trust. All such securities are to be held or disposed of by the
Custodian under, and subject at all times to the instructions pursuant
to, the terms of this Agreement. The Custodian shall have no power or
authority to assign, hypothecate, pledge, lend or otherwise dispose of
any such securities and investments, except pursuant to instructions
and only for the account of the Trust as set forth in Section 5 of
this Agreement.
(b) Notwithstanding anything herein to the contrary, the Custodian may at
any time or times with the written approval of the Board of Trustees,
appoint (and may at any time without the written approval of such
Board of Trustees remove) any other bank or trust company as its
sub-custodian or agent to carry out such of the provisions of
Subsection (a) of this Section 4 and of Section 5 of this Agreement,
as instructions may from time to time request, provided, however, that
the appointment of such sub-custodian or agent shall not relieve the
Custodian of any of its responsibilities hereunder, and provided,
further, that the Custodian shall not enter into arrangement with any
sub-custodian unless such sub-custodian meets the requirements of
Section 26 of the Investment Company Act of 1940 or Rule 17f-5
thereunder, if applicable.
5. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES.
The Custodian shall have sole power to release or deliver any Securities of
the Trust held by it pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver Securities held by it on behalf of the Trust
hereunder only:
(a) for sales of such Securities for the account of the Trust upon receipt
by the Custodian of Payment therefor;
(b) when such securities mature or are called, redeemed or retired or
otherwise become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for or upon conversion into other Securities alone or
other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or
otherwise;
(e) upon conversion of such Securities pursuant to their terms into other
Securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such Securities;
(g) for the purpose of exchanging interim receipts for temporary
Securities for definitive securities;
(h) for the purpose of effecting a loan of the portfolio Securities to any
person, firm, corporation or trust upon the receipt by the Custodian
of cash or cash equivalent collateral at least equal to the market
value of the securities loaned;
(i) to any bank for the purpose of collateralizing the obligation of the
Trust to repay any moneys borrowed by the Trust from such bank;
provided, however, that the Custodian may at the option of such
lending bank keep such collateral in its possession, subject to the
rights of such bank given to it by virtue of any promissory note or
agreement executed and delivered by the Trust to such bank; or
(j) for other proper purposes of the Trust.
As to any deliveries made by the Custodian pursuant to items (a), (b), (c),
(d), (e), (f), (g) and (h), Securities or funds receivable in exchange
therefor shall be deliverable to the Custodian. Before making any such
transfer, exchange or delivery, the Custodian shall receive (and may rely
upon) instructions requesting such transfer, exchange, or delivery and
stating that it is for a purpose permitted under the terms (a), (b), (c),
(d), (e), (f), (g), (h), or (i) of this Section 5, and, in respect of item
(j), upon receipt of instructions of a certified copy of a resolution of
the Board of Trustees of the Trust, signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary, specifying the
Securities to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper purpose of
the Trust, and naming the person or persons to whom delivery of such
Securities shall be made. In respect of item (h), the instructions shall
state the market value of the Securities to be loaned and the corresponding
amount of collateral to be deposited with the Custodian; thereafter, upon
receipt of instructions stating that the market value of the Securities
loaned has increased and specifying the amount of increase, the Custodian
shall collect from the borrower additional cash collateral in such amount.
6. FEDERAL RESERVE BOOK-ENTRY SYSTEM.
Notwithstanding any other provisions of this Agreement, it is expressly
understood and agreed that the Custodian is authorized in the performance
of its duties hereunder to deposit in the book-entry deposit system
operated by the Federal Reserve Bank (the "System"), United States
government, instrumentality and agency securities and any other Securities
deposited in the System and to use the facilities of the System, as
permitted by Rule 17f-4 under the Investment Company Act of 1940, in
accordance with the following terms and provisions:
(a) The Custodian may keep Securities of the Trust in the System provided
that such Securities are represented in an account ("Account") of the
Custodian's in the System which shall not include any assets of the
Custodian other than assets held in a fiduciary or custodian capacity.
(b) The records of the Custodian with respect to the participation in the
System through the Custodian shall identify by Book-Entry Securities
belonging to the Trust which are included with other Securities
deposited in the Account and shall at all times during the regular
business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Trust and employees
and agents of the Securities and Exchange Commission.
(c) The Custodian shall pay for Securities purchased for the account of
the Trust upon:
(i) receipt of advice from the System that such Securities have been
transferred to the Account; and
(ii) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Trust. The
Custodian shall transfer Securities sold for the account of the
Trust upon:
(1) receipt of advice from the System that payment for such
Securities has been transferred to the Account; and
(2) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Trust. The Custodian shall send the Trust a confirmation of
any transfers to or from the account of the Trust.
(d) The Custodian will provide the Trust with any report obtained by the
Custodian on the System's accounting system, internal accounting
control and procedures for safeguarding Securities deposited in the
System. The Custodian will provide the Trust with reports by
independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding Securities,
including Securities deposited in the System relating to the services
provided by the Custodian under this Agreement; such reports shall
detail material inadequacies disclosed by such examination, and, if
there are no such inadequacies, shall so state, and shall be of such
scope and in such detail as the Trust may reasonably require and shall
be of sufficient scope to provide reasonable assurance that any
material inadequacies would be disclosed.
7. USE OF CLEARING FACILITIES.
Notwithstanding any other provisions of the Agreement, the Custodian may,
in connection with transactions in portfolio Securities by the Trust, use
the facilities of the Depository Trust Company ("DTC"), and the
Participants Trust Company ("PTC"), as permitted by Rule 17f-4 under the
Investment Company Act of 1940, if such facilities have been approved by
the Board of Trustees of the Trust in accordance with the following:
(a) DTC and PTC may be used to receive and hold eligible Securities owned
by the Trust;
(b) payment for Securities purchased may be made through the clearing
medium employed by DTC and PTC for transactions of participants acting
through them;
(c) Securities of the Trust deposited in DTC and PTC will at all times be
segregated from any assets and cash controlled by the Custodian in
other than a fiduciary or custodian capacity but may be commingled
with other assets held in such capacities. Subject to the provisions
of the Agreement with regard to instructions, the Custodian will pay
out money only upon receipt of Securities or notification thereof and
will deliver Securities only upon the receipt of money or notification
thereof;
(d) all books and records maintained by the Custodian which relate to the
participation in DTC and PTC shall identify by Book-Entry Securities
belonging to the Trust which are deposited in DTC and PTC and shall at
all times during the Custodian's regular business hours be open to
inspection by the duly authorized officers, employees, agents and
auditors, and the Trust will be furnished with all the information in
respect of the services rendered to it as it may require;
(e) the Custodian will make available to the Trust copies of any internal
control reports concerning DTC and PTC delivered to it by either
internal or external auditors within ten days after receipt of such a
report by the Custodian; and
(f) confirmations of transactions using the facilities of DTC and PTC
shall be provided as set forth in Rule 17f-4 of the Investment Company
Act of 1940.
8. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS.
Unless and until the Custodian receives instructions to the contrary, the
Custodian shall on behalf of the Trust:
(a) Present for payment all coupons and other income items held by it for
the account of the Trust which call for payment upon presentation and
hold the funds received by it upon such payment for the Trust;
(b) collect interest and cash dividends received, with notice to the
Trust, for the accounts of the Trust;
(c) hold for the accounts of the Trust hereunder all stock dividends,
rights and similar Securities issued with respect to any securities
held by it hereunder;
(d) execute as agent on behalf of the Trust all necessary ownership
certificates required by the Internal Revenue Code or the Income Tax
Regulations of the United States Treasury Department or under the laws
of any state now or hereafter in effect, inserting the name of such
certificates as the owner of the Securities covered thereby, to the
extent it may lawfully do so;
(e) transmit promptly to the Trust all reports, notices and other written
information received by the Custodian from or concerning issuers of
the portfolio Securities; and
(f) collect from the borrower the Securities loaned and delivered by the
Custodian pursuant to item (h) of Section 5 hereof, any interest or
cash dividends paid on such Securities, and all stock dividends,
rights and similar Securities issued with respect to any such loaned
Securities.
With respect to Securities of foreign issuers, it is expected that the
Custodian will use its best efforts to effect collection of dividends,
interest and other income, and to notify the Trust of any call for
redemption, offer of exchange, right of subscription, reorganization, or
other proceedings affecting such Securities, or any default in payments due
thereon. It is understood, however, that the Custodian shall be under no
responsibility for any failure or delay in effecting such collections or
giving such notice with respect to Securities of foreign issuers,
regardless of whether or not the relevant information is published in any
financial service available to it unless (a) such failure or delay is due
to the Custodian's or any sub-custodians' negligence or (b) any relevant
sub-custodian has acted in accordance with established industry practices.
Collections of income in foreign currency are, to the extent possible, to
be converted into United States dollars unless otherwise instructed in
writing, and in effecting such conversion the Custodian may use such
methods or agencies as it may see fit, including the facilities of its own
foreign division at customary rates. All risk and expenses incident to such
collection and conversion is for the accounts of the Trust and the
Custodian shall have no responsibility for fluctuations in exchange rates
affecting any such conversion.
9. REGISTRATION OF SECURITIES.
Except as otherwise directed by instructions, the Custodian shall register
all Securities, except such as are in bearer form, in the name of a
registered nominee of the Custodian, as defined in the Internal Revenue
Code and any Regulation of the Treasury Department issued thereunder or in
any provision of any subsequent Federal tax law exempting such transaction
from liability for stock transfer taxes, and shall execute and deliver all
such certificates in connection therewith as may be required by such laws
or Regulations or under the laws of any State. The Custodian shall use its
best efforts to the end that the specific securities held by it hereunder
shall be at all times identifiable in its records.
The Trust, Nottingham, or NCSS shall from time to time furnish to the
Custodian appropriate instruments to enable the Custodian to hold or
deliver in proper form for transfer, or to register in the name of its
registered nominee, any securities which it may hold for the accounts of
the Trust and which may from time to time be registered in the name of the
Trust.
10. SEGREGATED ACCOUNT.
The Custodian shall upon receipt of written instructions from the Trust,
Nottingham, or NCSS establish and maintain a segregated account or accounts
for and on behalf of the Trust, into which account or accounts may be
transferred cash and/or Securities, including Securities maintained in an
account by the Custodian pursuant to Section 4 hereof,
(i) in accordance with the provisions of any agreement among the Trust,
the Custodian and a broker-dealer registered under the Securities and
Exchange Act of 1934 and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Trust;
(ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Trust or
commodity futures contracts or options thereon purchased or sold by
the Trust;
(iii)for the purposes of compliance by the Trust with the procedures
required by the Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies; and
(iv) for other proper corporate purposes, but only, in the case of clause
(iv), upon receipt of, in addition to an Officer's Certificate, a
certified copy of a resolution of the Board of Trustees signed by an
officer of the Trust and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
11. VOTING AND OTHER ACTIONS.
Neither the Custodian nor any nominee of the Custodian shall vote any of
the Securities held hereunder by or for the accounts of the Trust, except
in accordance with instructions. The Custodian shall execute and deliver,
or cause to be executed and delivered, to the appropriate investment
advisor of each series of the Trust, all notices, proxies and proxy
soliciting materials with relation to such Securities (excluding any
Securities loaned and delivered by the Custodian pursuant to item (h) of
Section 5 hereof), such proxies to be executed by the registered holder of
such Securities (if registered otherwise than in the name of the Trust),
but without indicating the manner in which such proxies are to be voted.
Such proxies shall be delivered by regular mail to the appropriate
investment advisor of each series of the Trust.
12. TRANSFER TAX AND OTHER DISBURSEMENTS.
The Trust shall pay or reimburse the Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder and for
all other necessary and proper disbursements and expenses made or incurred
by the Custodian in the performance of this Agreement. The Custodian shall
execute and deliver such certificates in connection with Securities
delivered to it or by it under this Agreement as may be required under the
provisions of the Internal Revenue Code and any Regulations of the Treasury
Department issued thereunder, or under the laws of any State, to exempt
from taxation any exemptible transfers and/or deliveries of any such
securities.
13. CONCERNING THE CUSTODIAN.
(a) The Custodian's compensation shall be paid by the Trust. The Custodian
shall not be liable for any action taken in good faith upon receipt of
instructions as herein defined or a certified copy of any resolution
of the Board of Trustees, and may rely on the genuineness of any such
document which it may in good faith believe to have been validly
executed.
(b) The Custodian shall not be liable for any loss or damage, resulting
from its action or omission to act or otherwise, except for any such
loss or damage arising out of its own negligence or willful misconduct
and except that the Custodian shall be responsible for the acts of any
sub-custodian, or agent appointed hereunder and approved by the Board
of Trustees of the Trust. At any time, the Custodian may seek advice
from legal counsel for the Trust whose legal fees shall be paid at the
sole expense of the Trust, with respect to any matter arising in
connection with this Agreement, and it shall not be liable for any
action taken or not taken or suffered by it in good faith in
accordance with the opinion of counsel for the Trust. The Trust and
not the Custodian shall be responsible for any fee or charges by
counsel for the Trust in connection with any such opinion rendered to
the Custodian.
(c) Without limiting the generality of the foregoing, the Custodian shall
be under no duty or obligation to inquire into, and shall not be
liable for:
(i) The validity of the issue of any Securities purchased by or for
the Trust, the legality of the purchase thereof, or the propriety
of the amount paid therefor;
(ii) The legality of the issue or sale of any Securities by or for the
Trust, or the propriety of the amount for which the same are
sold;
(iii)The legality of the issue or sale of any shares of the Trust, or
the sufficiency of the amount to be received therefor;
(iv) The legality of the redemption of any shares of the Trust, or the
propriety of the amount to be paid therefor;
(v) The legality of the declaration of any dividend or distribution
by the Trust, or the legality of the issue of any Securities of
the Trust in payment of any dividend or distribution in shares;
(vi) The legality of the delivery of any Securities held for the Trust
for the purpose of collateralizing the obligation of the Trust to
repay any moneys borrowed by the Trust; or
(vii)The legality of the delivery of any Securities held for the
Trust for the purpose of lending said securities to any person,
firm or corporation.
(d) The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount, if the Securities upon which such
amount is payable are in default, or if payment is refused after due
demand or presentation by the Custodian on behalf of the Trust, unless
and until
(i) the Custodian shall be directed to take such action by written
instructions signed in the name of the Trust on behalf of the
Trust by one of its executive officers; and
(ii) the Custodian shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any
such action.
(e) The Custodian shall not be under any duty or obligation to ascertain
whether any securities at any time delivered to or held by it for the
account of the Trust, are such as may properly be held by the Trust
under the provisions of the Trust's Declaration of Trust or By-Laws as
amended from time to time.
(f) The Trust agrees to indemnify and hold harmless the Custodian and its
nominees, sub-custodians, depositories and agent from all taxes,
charges, expenses, assessments, liabilities, and losses (including
counsel fees) incurred or assessed against it or its nominees,
sub-custodians, depositories and agents in connection with the
performance of this Agreement, except such as may arise from its or
its nominee's, sub-custodian's, depositories' and agent's own
negligent action, negligent failure to act, breach of this agreement
or willful misconduct. The Custodian is authorized to charge any
account of the Trust for such items; provided, however, that, except
for overdrafts as to which the Custodian shall have the immediate
right of offset, prior to charging any such account for such items,
the Custodian shall first have forwarded an invoice for such item to
the Trust and 30 days shall have elapsed from the date of such invoice
to the Trust without payment of the same having been received by the
Custodian. In the event of any advance of funds for any purpose made
by the Custodian resulting from orders or instructions of the Trust,
or in the event that the Custodian or its nominees, sub-custodians,
depositories and agents shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the
performance of this Agreement, except such as may arise from its or
its nominee's own negligent action, negligent failure to act or
willful misconduct any property at any time held for the accounts of
the Trust shall be security therefor. Nothing in this paragraph,
however, shall be deemed to apply to transaction and asset holding
fees or out of pocket expenses of the Custodian which are payable by
Nottingham and/or NCSS, and as to such fees and expenses the Custodian
shall have no right of offset or security under this paragraph.
(g) The Custodian agrees to indemnify and hold harmless the Trust and
Trust's Trustees and officers from all taxes, charges, expenses,
assessments, claims liabilities, and losses (including counsel fees)
incurred or assumed against any of them as a result of any breach or
violation of this Agreement by the Custodian or any act or omission by
the Custodian or its Trustees, officers, employees and agents and
resulting from their negligence or willful misconduct.
(h) In the event that, pursuant to this Agreement, instructions direct the
Custodian to pay for securities on behalf of the Trust, the Trust
hereby grants to the Custodian a security interest in such Securities,
until the Custodian has been reimbursed by the Trust in immediately
available funds. The instructions designating the Securities to be
paid for shall be considered the requisite description and designation
of the Securities pledged to the Custodian for purposes of the
requirements of the Uniform Commercial Code.
(i) The Custodian represents that it is qualified to act as such under
section 26(a) of the Investment Company Act of 1940.
14. REPORTS BY THE CUSTODIAN.
(a) The Custodian shall furnish the Trust and the appropriate investment
advisor of each series of the Trust, daily with a statement
summarizing all transactions and entries for the accounts of the
Trust. The Custodian shall furnish the Trust at the end of every month
with a list of the portfolio Securities held by it as Custodian for
the Trust, adjusted for all commitments confirmed by instructions as
of such time. The books and records of the Custodian pertaining to its
actions under this Agreement shall be open to inspection and audit at
reasonable times by officers of the Trust, its independent public
accountants and officers of its investment advisers.
(b) The Custodian will maintain such books and records relating to
transactions effected by it as are required by the Investment Company
Act of 1940, as amended, and any rule or regulation thereunder; or by
any other applicable provision of the law to be maintained by the
Trust or its Custodian, with respect to such transactions, and
preserving or causing to be preserved, any such books and records for
such periods as may be required by any such rule or regulation.
15. TERMINATION OR ASSIGNMENT.
This agreement may be terminated by the Trust, or by the Custodian, on
sixty (60) days' notice, given in writing and sent by registered mail to
the Custodian, or to the Trust, as the case may be, at the address
hereinafter set forth. Upon any termination of this Agreement, pending
appointment by the Trust of a successor to the Custodian or a vote of the
shareholders of the Trust to dissolve or to function without a Custodian of
its funds, the Custodian shall not deliver funds, Securities or other
property of the Trust to the Trust, but may deliver them to a bank or trust
company of its own selection having an aggregate capital, surplus, and
undivided profits, as shown by its last published report of not less than
ten million dollars ($10,000,000) and otherwise qualified to act as a
custodian to a registered investment company as a Custodian for the Trust
to be held under terms similar to those of this Agreement; provided,
however, that the Custodian shall not be required to make any such delivery
or payment until full payment shall have been made to the Custodian of all
its contractual fees, compensations, costs and expenses, except for fees
and expenses all as set forth in Section 13 of this Agreement.
16. MISCELLANEOUS.
(a) Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at
its office at First Union National Bank of North Carolina, 401 South
Tryon Street, Charlotte, North Carolina 28288, or at such other place
as the Custodian may from time to time designate in writing.
(b) Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Trust, shall be sufficiently given
if addressed to the Trust and mailed or delivered to it at 105 N.
Washington Street, Rocky Mount, North Carolina 27802, or at-such other
place as the Trust may from time to time designate in writing.
(c) This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties with the same formality
as this Agreement, and authorized or approved by a resolution of the
Board of Trustees of the Trust.
(d) This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns, provided, however,
that this Agreement shall not be assignable by the Trust without the
written consent of the Custodian or by the Custodian without the
written consent of the Trust, authorized or approved by a resolution
of its Board of Trustees.
(e) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall,
together, constitute but one instrument.
(f) This Agreement and the rights and obligations of the Trust and the
Custodian hereunder shall be construed and interpreted in accordance
with the laws of the State of North Carolina.
(g) The Declaration of Trust of the Trust has been filed with the
Secretary of State of the Commonwealth of Massachusetts. The
obligations of the Trust on behalf of the Funds are not personally
binding upon, nor shall resort be had to the private property of any
of the Trustees, shareholders, officers, employees or agents of the
Trust, but only the Trust's property shall be bound.
<PAGE>
IN WITNESS WHEREOF, the Trust and the Custodian have caused this Agreement to be
signed and witnessed by duly authorized persons as of the date first written
above. Executed in several counterparts, each of which is an original.
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
Attest: /s/ Sheila Cliwe
_________________________
By: /s/ Jay Bunnell
____________________________________
Title: Trust Officer
_________________________________
SCM INVESTMENT TRUST
Attest: /s/ C. Frank Watson, III
_________________________
By: /s/ Dan P. Shanklin
____________________________________
Title: Chairman
_________________________________
Exhibit (h)(1): Fund Accounting and Compliance Administration Agreement
---------------
FUND ACCOUNTING
AND COMPLIANCE ADMINISTRATION
AGREEMENT
THIS AGREEMENT, made and entered into as of the 18TH day of JUNE, 1998, by and
between SCM INVESTMENT TRUST, a Massachusetts business trust (the "Trust"), and
THE NOTTINGHAM COMPANY, INC., a North Carolina corporation (the
"Administrator").
WHEREAS, the Trust is an open-end management investment company of the series
type which is registered under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Administrator is in the business of providing administrative
services to investment companies.
NOW THEREFORE, the Trust and the Administrator do mutually promise and agree as
follows:
1. Employment. The Trust hereby employs Administrator and its subsidiary The
Nottingham Company ("TNC") to act as fund accountant and fund administrator
for each Fund of the Trust. Administrator, at its own expense, shall render
the services and assume the obligations herein set forth subject to being
compensated therefore as herein provided.
2. Delivery of Documents. The Trust has furnished the Administrator with
copies properly certified or authenticated of each of the following:
a) The Trust's Declaration of Trust, as filed with the State of
Massachusetts (such Declaration, presently in effect and as it shall
from time to time be amended, is herein called the "Declaration");
b) The Trust's By-Laws (such By-Laws, as presently in effect and as they
shall from time to time be amended, are herein called the "By-Laws");
c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Administrator and approving this Agreement; and
d) The Trust's Registration Statement on Form N-1A under the 1940 Act and
under the Securities Act of 1933 as amended, (the "1933 Act"),
including all exhibits, relating to shares of beneficial interest of,
and containing the Prospectus of, each Fund of the Trust (herein
called the "Shares") as filed with the Securities and Exchange
Commission and all amendments thereto.
The Trust will furnish the Administrator with copies, properly certified or
authenticated, of all amendments of or supplements to the foregoing.
3. Duties of the Administrator. Subject to the policies and direction of the
Trust's Board of Trustees, the Administrator will provide a continuous
executive management program and day to day supervision for each of the
Trust's Funds. Services to be provided shall be in accordance with the
Trust's organizational and registration documents as listed in paragraph 2
hereof and with the Prospectus of each Fund of the Trust. The Administrator
further agrees that it:
a) Will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and will, in addition, conduct its
activities under this Agreement in accordance with regulations of any
other Federal and State agencies which may now or in the future have
jurisdiction over its activities;
b) Will maintain, except as may be required to be maintained by third
parties hired by the Trust under Rule 31a-3 of the 1940 Act, the
account books and records of the Trust and each Fund of the Trust as
required by Rule 31a-1 of the 1940 Act and will preserve such records
in accordance with Rule 31a-2 of the 1940 Act;
c) Will provide, at its expense the necessary non-executive personnel and
data processing equipment and software to perform the Portfolio
Accounting Services, Expense Accrual and Payment Services, Fund
Valuation and Financial Reporting Services, Tax Accounting Services,
Compliance Control Services, Registration Services, SEC Filing
Services, and Minutes, Proxy Material Services shown on Exhibit A
hereof;
d) Will provide, at its expense, certain executive personnel for the
Trust as may be agreed upon from time to time with the Board of
Trustees; and
e) Will provide all office space and general office equipment necessary
for the activities of the Trust except as may be provided by third
parties pursuant to separate agreements with the Trust.
Notwithstanding anything contained in this Agreement to the contrary, the
Administrator (including its directors, officers, employees and agents) shall
not be required to perform any of the duties of, assume any of the obligations
or expenses of, or be liable for any of the acts or omissions of, any investment
advisor of a Fund of the Trust or other third party subject to separate
agreements with the Trust. The Administrator shall not be responsible hereunder
for the administration of the Code of Ethics of the Trust which shall be under
the responsibility of the investment advisors, except insofar as the Code of
Ethics applies to the personnel of the Administrator. It is the express intent
of the parties hereto that the Administrator shall not have control over or be
responsible for the placement, investment or reinvestment of the assets of any
Fund of the Trust. The Administrator may from time to time, subject to the
approval of the Trustees (other than with respect to TNC), obtain at its own
expense the services of consultants or other third parties to perform part or
all of its duties hereunder, and such parties may be affiliates of the
Administrator.
4. Services Not Exclusive. The management and administrative services
furnished by the Administrator hereunder are not to be deemed exclusive,
and the Administrator shall be free to furnish similar services to others
so long as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Administrator hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's
request.
6. Expenses. During the term of this Agreement, the Administrator will pay all
expenses incurred by it in connection with the performance of its
obligations under this Agreement.
Notwithstanding the foregoing, the Trust shall pay the expenses and costs
of the following:
a) Taxes;
b) Brokerage fees and commissions with regard to portfolio transaction of
the Funds;
c) Interest charges, fees and expenses of the custodian of the Funds'
portfolio securities;
d) Fees and expenses of the Trust's dividend disbursing and transfer
agent;
e) Fees and expenses of the Trust's fund accounting agent and
administrator, in accordance with paragraph 7 herein;
f) Costs, as may be allocable to and agreed upon in advance by the
Trustees and the Administrator, of all non-executive and clerical
personnel and all data processing equipment and software in connection
with the provision of fund accounting and recordkeeping services
functions as contemplated herein;
g) Auditing and legal expenses of the Trust;
h) Cost of maintenance of the Trust's existence as a legal entity;
i) Cost of special forms, stationery and telephone services (but not
telephone equipment) for the Trust;
j) Compensation of Independent Trustees who are not interested persons of
the Trust as that term is defined by law;
k) Costs of Trust meetings;
l) Federal and State registration fees and expenses;
m) Costs of setting in type, printing and mailing Prospectuses, reports
and notices to existing shareholders;
n) The Advisory fees payable to each Funds' Investment Advisor;
o) Direct out-of-pocket costs in connection with Trust activities, such
as the costs of long distance telephone and wire charges, postage and
the printing of special forms and stationery, copying charges,
financial publications used in connection with Trust activities, etc.,
and
p) Other actual out-of-pocket expenses of the Administrator as may be
agreed upon in writing from time to time by the Administrator and the
Trustees.
7. Compensation. For the services provided and the expenses assumed by the
Administrator pursuant to this Agreement, the Trust will pay the
Administrator and the Administrator will accept as full compensation the
administrative fees and expenses as set forth on Exhibit C attached hereto.
Special projects, not included herein and requested in writing by the
Trustees, shall be completed by the Administrator and invoiced to the Trust
as mutually agreed upon.
8.(a)Limitation of Liability. The Administrator shall not be liable for any
loss, damage or liability related to or resulting from the placement,
investment or reinvestment of assets in any Fund of the Trust or the acts
or omissions of any Fund's investment advisor or any other third party
subject to separate agreements with the Trust. Further, the Administrator
shall not be liable for any error of judgment or mistake of law or for any
loss or damage suffered by the Trust in connection with the performance of
this Agreement or any agreement with a third party, except a loss resulting
directly from (i) a breach of fiduciary duty on the part of the
Administrator with respect to the receipt of compensation for services; or
(ii) willful misfeasance, bad faith or gross negligence on the part of the
Administrator in the performance of its duties or from reckless disregard
by it of its duties under this Agreement.
(b)Indemnification of Administrator. Subject to the limitations set forth in
this Subsection 8(b), the Trust shall indemnify, defend and hold harmless
(from the assets of the Fund or Funds to which the conduct in question
relates) the Administrator against all loss, damage and liability,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including reasonable
accountants' and counsel fees, incurred by the Administrator in connection
with the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or
legislative body, related to or resulting from this Agreement or the
performance of services hereunder, except with respect to any matter as to
which it has been determined that the loss, damage or liability is a direct
result of (i) a breach of fiduciary duty on the part of the Administrator
with respect to the receipt of compensation for services; or (ii) willful
misfeasance, bad faith or gross negligence on the part of the Administrator
in the performance of its duties or from reckless disregard by it of its
duties under this Agreement (either and both of the conduct described in
clauses (i) and (ii) above being referred to hereinafter as "Disabling
Conduct"). A determination that the Administrator is entitled to
indemnification may be made by (i) a final decision on the merits by a
court or other body before whom the proceeding was brought that the
Administrator was not liable by reason of Disabling Conduct, (ii) dismissal
of a court action or an administrative proceeding against the Administrator
for insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the Administrator was
not liable by reason of Disabling Conduct by, (a) vote of a majority of a
quorum of Trustees who are neither "interested persons" of the Trust as the
quoted phrase is defined in Section 2(a)(19) of the 1940 Act nor parties to
the action, suit or other proceeding on the same or similar grounds that is
then or has been pending or threatened (such quorum of such Trustees being
referred to hereinafter as the "Independent Trustees"), or (b) an
independent legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by the Administrator (but
excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), shall be paid from time to time by the Fund or Funds
to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided, that the
Administrator shall have undertaken to repay the amounts so paid unless it
is ultimately determined that it is entitled to indemnification of such
expenses under this Subsection 8(b) and if (i) the Administrator shall have
provided security for such undertaking, (ii) the Trust shall be insured
against losses arising by reason of any lawful advances, or (iii) a
majority of the Independent Trustees, or an independent legal counsel in a
written opinion, shall have determined, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the Administrator ultimately will be entitled to
indemnification hereunder.
As to any matter disposed of by a compromise payment by the Administrator
referred to in this Subsection 8(b), pursuant to a consent decree or
otherwise, no such indemnification either for said payment or for any other
expenses shall be provided unless such indemnification shall be approved
(i) by a majority of the Independent Trustees or (ii) by an independent
legal counsel in a written opinion. Approval by the Independent Trustees
pursuant to clause (i) shall not prevent the recovery from the
Administrator of any amount paid to the Administrator in accordance with
either of such clauses as indemnification of the Administrator is
subsequently adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that the Administrator's
action was in or not opposed to the best interests of the Trust or to have
been liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in its conduct under the Agreement.
The right of indemnification provided by this Subsection 8(b) shall not be
exclusive of or affect any of the rights to which the Administrator may be
entitled. Nothing contained in this Subsection 8(b) shall affect any rights
to indemnification to which Trustees, officers or other personnel of the
Trust, and other persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain liability
insurance on behalf of any such person.
The Board of Trustees of the Trust shall take all such action as may be
necessary and appropriate to authorize the Trust hereunder to pay the
indemnification required by this Subsection 8(b) including, without
limitation, to the extent needed, to determine whether the Administrator is
entitled to indemnification hereunder and the reasonable amount of any
indemnity due it hereunder, or employ independent legal counsel for that
purpose.
8.(c)The provisions contained in Section 8 shall survive the expiration or
other termination of this Agreement, shall be deemed to include and protect
the Administrator and its directors, officers, employees and agents and
shall inure to the benefit of its/their respective successors, assigns and
personal representatives.
9. Duration and Termination. This Agreement shall be continued, effective as
of the date first above written, and shall continue in force and effect for
a period of one year thereafter and shall be continued on its terms from
year to year thereafter unless sooner terminated as permitted herein. This
Agreement may be terminated at any time, without payment of any penalty, by
the Trust or the Administrator upon ninety days' written notice to the
other party.
10. Amendment. This Agreement may be amended by mutual written consent of the
parties. If, at any time during the existence of this Agreement, the Trust
deems it necessary or advisable in the best interests of the Trust that any
amendment of this Agreement be made in order to comply with the
recommendations or requirements of the Securities and Exchange Commission
or state regulatory agencies or other governmental authority, or to obtain
any advantage under state or federal laws, and shall notify the
Administrator of the form of Amendment which it deems necessary or
advisable and the reasons therefor, and if the Administrator declines to
assent to such amendment, the Trust may terminate this Agreement forthwith.
11. Notice. Any notice that is required to be given by the parties to each
other under the terms of this Agreement shall be in writing, addressed or
delivered, or mailed postpaid to the other party at the principal place of
business of such party.
12. Construction. This Agreement shall be governed and enforced in accordance
with the laws of the State of North Carolina. If any provision of this
Agreement, or portion thereof, shall be determined to be void or
unenforceable by any court of competent jurisdiction, then such
determination shall not affect any other provision of this Agreement, or
portion thereof, all of which other provisions and portions thereof shall
remain in full force and effect. If any provision of this Agreement, or
portion thereof, is capable of two interpretations, one of which would
render the provision, or portion thereof, void and the other of which would
render the provision, or portion thereof, valid, then the provision, or
portion thereof, shall have the meaning which renders it valid.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers effective as of the date indicated above.
SCM INVESTMENT TRUST
By: /S/ Dan P. Shanklin (SEAL)
_______________________________
THE NOTTINGHAM COMPANY, INC.
By: /s/ Frank P. Meadows, III (SEAL)
_______________________________
<PAGE>
Exhibit A
---------
FUND ACCOUNTING AND RECORDKEEPING SERVICES
Portfolio Accounting Services:
- ------------------------------
(1) Maintain portfolio records on a trade date basis using security trade
information communicated from the investment manager on a timely basis.
(2) For each valuation date, obtain prices from a pricing source approved by
the Board of Trustees and apply those prices to the portfolio positions.
For those securities where market quotations are not readily available, the
Board of Trustees shall approve, in good faith, the method for determining
the fair market value for such securities.
(3) Identify interest and dividend accrual balances as of each valuation date
and calculate gross earnings on investments for the accounting period.
(4) Determine gain/loss on security sales and identify them as to short or long
term status. Account for periodic distributions of gain to shareholders and
maintain undistributed gain or loss balances as of each valuation date.
Expense Accrual and Payment Services:
- -------------------------------------
(5) For each valuation date, calculate the expense accrual amounts as directed
by the Trust as to methodology, rate, or dollar amount.
(6) Issue payments for Fund expenses upon receipt of funds from the Trust's
Custodian.
(7) Account for Fund expenditures and maintain expense accrual balances at the
level of accounting detail specified by the Fund.
(8) Support periodic expense accrual review, i.e., comparison of actual expense
activity versus accrual amounts.
(9) Provide expense accrual and payment reporting.
Fund Valuation and Financial Reporting Services:
- ------------------------------------------------
(10) Account for Fund share purchases, sales, exchanges, transfers, dividend
reinvestments, and other Fund share activity, for each of the Funds, as
reported by the Trust on a timely basis.
(11) Determine net investment income (earnings) for each of the Funds as of each
valuation date. Account for periodic distributions of earnings to
shareholders and maintain undistributed net investment income balances as
of each valuation date.
(12) Maintain a general ledger for each of the Funds in the form defined by the
Trust and produce a set of financial statements as may be agreed upon from
time to time as of each valuation date.
(13) For each day the Funds are opened as defined in the prospectuses, determine
the net asset value of each of the Funds according to the accounting
policies and procedures set forth in the prospectuses.
(14) Calculate per share net asset value, per share net earnings, and other per
share amounts reflective of fund operation at such time as required by the
nature and characteristics of the Funds. Perform the calculations using the
number of shares outstanding reported by the Trust to be applicable at the
time of calculation.
(15) Communicate, at an agreed upon time, the per share price for each valuation
date to parties as agreed upon from time to time.
(16) Prepare monthly reports which document the adequacy of accounting detail to
support month-end ledger balances.
Tax Accounting Services:
- ------------------------
(17) Maintain tax accounting records for each of the Funds' investment
portfolios so as to support tax reporting required for IRS defined
regulated investment companies.
(18) Maintain tax lot detail for the investment portfolio.
(19) Calculate taxable gain/loss on security sales using the tax cost basis
defined for each Fund.
(20) Report the taxable components of income and capital gains distributions to
the Trust to support tax reporting to the shareholders.
Compliance Control Services:
- ----------------------------
(21) Maintain accounting records to support compliance monitoring by the Trust.
(22) Support reporting to regulatory bodies and support financial statement
preparation by making the Fund accounting records available to the Trust,
the Securities and Exchange Commission, and the outside auditors.
(23) Maintain accounting records according to the Investment Company Act of 1940
and regulations provided thereunder.
Registration Services
- ---------------------
(24) Prepare all reports and filings required to maintain the registration and
qualification of the Fund and its shares under federal and state securities
laws, including the annual amendment to its Registration Statement on From
N-1A containing an updated Prospectus and Statement of Additional
Information.
SEC Filing Services
- -------------------
(25) Prepare and make periodic SEC filings, including From N-SAR, annual and
semi-annual shareholder reports, other shareholder reports, and fidelity
bond amendments but not including preparation and filing of any sales
literature and preparation of President's letter contained in shareholder
reports.
Minutes, Proxy Material Services
- --------------------------------
(26) Maintenance of minutes and other records of meetings of the Board of
Trustees.
(27) Preparation of any proxy material and related shareholder meetings and
records.
<PAGE>
Exhibit C
---------
ADMINISTRATOR'S COMPENSATION SCHEDULE
For the services delineated in the FUND ACCOUNTING AND COMPLIANCE ADMINISTRATION
AGREEMENT, the Administrator shall be compensated monthly, as of the last day of
each month, within five business days of the month end, a base fee plus a fee
based upon net assets according to the following schedule. The fee is calculated
based upon the average daily net assets of each Fund:
Base fee: $2,000 per month
---------
Class Fee: $ 750 per month for each additional Class
----------
Asset based fee:
----------------
Annual
Net Assets Fee
---------- ---
On the first $100 million 0.150%
On all assets over $100 million 0.125%
Securities pricing:
-------------------
$0.15 per equity per pricing day priced
$0.20 per U.S. Treasury
$0.40 per asset backed security per pricing day
$0.40 per corporate bond per pricing day
$2.00 per equity per month for corporate action
Blue Sky administration:
-----------------------
$150 per registration per state per year
Minimum Aggregate Fee:
----------------------
Minimum aggregate fee of $3,000 per month for all fees paid to the Administrator
(excluding securities pricing and blue sky administration), analyzed monthly.
Exhibit (h)(2): Dividend Disbursing and Transfer Agent Agreement
---------------
DIVIDEND DISBURSING
AND TRANSFER AGENT
AGREEMENT
THIS AGREEMENT, made and entered into as of the 18TH day of JUNE, 1998, by and
between SCM INVESTMENT TRUST, a Massachusetts business trust (the "Trust"), and
NC SHAREHOLDER SERVICES, LLC, a North Carolina limited liability company (the
"Transfer Agent").
WHEREAS, the Trust is an open-end management investment company of the series
type which is registered under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Transfer Agent is in the business of providing dividend disbursing,
transfer agent, and shareholder services to investment companies.
NOW THEREFORE, the Trust and the Transfer Agent do mutually promise and agree as
follows:
1. Employment. The Trust hereby employs Transfer Agent to act as dividend
disbursing and transfer agent for each Fund of the Trust. Transfer Agent,
at its own expense, shall render the services and assume the obligations
herein set forth subject to being compensated therefore as herein provided.
2. Delivery of Documents. The Trust has furnished the Transfer Agent with
copies properly certified or authenticated of each of the following:
a) The Trust's Declaration of Trust, as filed with the State of
Massachusetts (such Declaration, as presently in effect and as it
shall from time to time be amended, is herein called the
"Declaration");
b) The Trust's By-Laws (such By-Laws, as presently in effect and as they
shall from time to time be amended, are herein called the "By-Laws");
c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Transfer Agent and approving this Agreement; and
d) The Trust's Registration Statement on Form N-1A under the 1940 Act and
under the Securities Act of 1933 as amended, (the "1933 Act"),
including all exhibits, relating to shares of beneficial interest of,
and containing the Prospectus of, each Fund of the Trust (herein
called the "Shares") as filed with the Securities and Exchange
Commission and all amendments thereto.
The Trust will furnish the Transfer Agent with copies, properly certified or
authenticated, of all amendments of or supplements to the foregoing.
3. Duties of the Transfer Agent. Subject to the policies and direction of the
Trust's Board of Trustees, the Transfer Agent will provide day to day
supervision for the dividend disbursing, transfer agent, and shareholder
servicing operations of each of the Trust's Funds. Services to be provided
shall be in accordance with the Trust's organizational and registration
documents as listed in paragraph 2 hereof and with the Prospectus of each
Fund of the Trust. The Transfer Agent further agrees that it:
a) Will conform with all applicable rules and regulations of the
Securities and Exchange Commission and will, in addition, conduct its
activities under this Agreement in accordance with regulations of any
other federal and state agency which may now or in the future have
jurisdiction over its activities.
b) Will provide, at its expense the non-executive personnel and data
processing equipment and software necessary to perform the Shareholder
Servicing functions shown on Exhibit A hereof; and
c) Will provide all office space and general office equipment necessary
for the dividend disbursing, transfer agent, and shareholder servicing
activities of the Trust except as may be provided by third parties
pursuant to separate agreements with the Trust.
Notwithstanding anything contained in this Agreement to the contrary, the
Transfer Agent (including its directors, officers, employees and agents)
shall not be required to perform any of the duties of, assume any of the
obligations or expenses of, or be liable for any of the acts or omissions
of, any investment advisor of a Fund of the Trust or other third party
subject to separate agreements with the Trust. The Transfer Agent shall not
be responsible hereunder for the administration of the Code of Ethics of
the Trust which shall be under the responsibility of the investment
advisors, except insofar as the Code of Ethics applies to the personnel of
the Transfer Agent. It is the express intent of the parties hereto that the
Transfer Agent shall not have control over or be responsible for the
placement (except as specifically directed by a Shareholder of the Trust),
investment or reinvestment of the assets of any Fund of the Trust. The
Transfer Agent may from time to time, subject to the approval of the
Trustees, obtain at its own expense the services of consultants or other
third parties to perform part or all of its duties hereunder, and such
parties may be affiliates of the Transfer Agent.
4. Services Not Exclusive. The services furnished by the Transfer Agent
hereunder are not to be deemed exclusive, and the Transfer Agent shall be
free to furnish similar services to others so long as its services under
this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Transfer Agent hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's
request.
6. Expenses. During the term of this Agreement, the Transfer Agent will pay
all expenses incurred by it in connection with the performance of its
obligations under this Agreement.
7. Compensation. For the services provided and the expenses assumed by the
Transfer Agent pursuant to this Agreement, the Trust will pay the Transfer
Agent and the Transfer Agent will accept as full compensation the fees and
expenses as set forth on Exhibit C attached hereto. Special projects, not
included herein and requested in writing by the Trustees, shall be
completed by the Transfer Agent and invoiced to the Trust as mutually
agreed upon.
8.(a)Limitation of Liability. The Transfer Agent shall not be liable for any
loss, damage or liability related to or resulting from the placement
(except as specifically directed by a Shareholder of the Trust), investment
or reinvestment of assets in any Fund of the Trust or the acts or omissions
of any Fund's investment advisor or any other third party subject to
separate agreements with the Trust. Further, the Transfer Agent shall not
be liable for any error of judgment or mistake of law or for any loss or
damage suffered by the Trust in connection with the performance of this
Agreement or any agreement with a third party, except a loss resulting
directly from (i) a breach of fiduciary duty on the part of the Transfer
Agent with respect to the receipt of compensation for services; or (ii)
willful misfeasance, bad faith or gross negligence on the part of the
Transfer Agent in the performance of its duties or from reckless disregard
by it of its duties under this Agreement.
8.(b)Indemnification of Transfer Agent. Subject to the limitations set forth in
this Subsection 8(b), the Trust shall indemnify, defend and hold harmless
(from the assets of the Fund or Funds to which the conduct in question
relates) the Transfer Agent against all loss, damage and liability,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including reasonable
accountants' and counsel fees, incurred by the Transfer Agent in connection
with the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or
legislative body, related to or resulting from this Agreement or the
performance of services hereunder, except with respect to any matter as to
which it has been determined that the loss, damage or liability is a direct
result of (i) a breach of fiduciary duty on the part of the Transfer Agent
with respect to the receipt of compensation for services; or (ii) willful
misfeasance, bad faith or gross negligence on the part of the Transfer
Agent in the performance of its duties or from reckless disregard by it of
its duties under this Agreement (either and both of the conduct described
in clauses (i) and (ii) above being referred to hereinafter as "Disabling
Conduct"). A determination that the Transfer Agent is entitled to
indemnification may be made by (i) a final decision on the merits by a
court or other body before whom the proceeding was brought that the
Transfer Agent was not liable by reason of Disabling Conduct, (ii)
dismissal of a court action or an administrative proceeding against the
Transfer Agent for insufficiency of evidence of Disabling Conduct, or (iii)
a reasonable determination, based upon a review of the facts, that the
Transfer Agent was not liable by reason of Disabling Conduct by, (a) vote
of a majority of a quorum of Trustees who are neither "interested persons"
of the Trust as the quoted phrase is defined in Section 2(a)(19) of the
1940 Act nor parties to the action, suit or other proceeding on the same or
similar grounds that is then or has been pending or threatened (such quorum
of such Trustees being referred to hereinafter as the "Independent
Trustees"), or (b) an independent legal counsel in a written opinion.
Expenses, including accountants' and counsel fees so incurred by the
Transfer Agent (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), shall be paid from time to time by
the Fund or Funds to which the conduct in question related in advance of
the final disposition of any such action, suit or proceeding; provided,
that the Transfer Agent shall have undertaken to repay the amounts so paid
unless it is ultimately determined that it is entitled to indemnification
of such expenses under this Subsection 8(b) and if (i) the Transfer Agent
shall have provided security for such undertaking, (ii) the Trust shall be
insured against losses arising by reason of any lawful advances, or (iii) a
majority of the Independent Trustees, or an independent legal counsel in a
written opinion, shall have determined, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the Transfer Agent ultimately will be entitled to
indemnification hereunder.
As to any matter disposed of by a compromise payment by the Transfer Agent
referred to in this Subsection 8(b), pursuant to a consent decree or
otherwise, no such indemnification either for said payment or for any other
expenses shall be provided unless such indemnification shall be approved
(i) by a majority of the Independent Trustees or (ii) by an independent
legal counsel in a written opinion. Approval by the Independent Trustees
pursuant to clause (i) shall not prevent the recovery from the Transfer
Agent of any amount paid to the Transfer Agent in accordance with either of
such clauses as indemnification of the Transfer Agent is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good
faith in the reasonable belief that the Transfer Agent's action was in or
not opposed to the best interests of the Trust or to have been liable to
the Trust or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in its
conduct under the Agreement.
The right of indemnification provided by this Subsection 8(b) shall not be
exclusive of or affect any of the rights to which the Transfer Agent may be
entitled. Nothing contained in this Subsection 8(b) shall affect any rights
to indemnification to which Trustees, officers or other personnel of the
Trust, and other persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain liability
insurance on behalf of any such person.
The Board of Trustees of the Trust shall take all such action as may be
necessary and appropriate to authorize the Trust hereunder to pay the
indemnification required by this Subsection 8(b) including, without
limitation, to the extent needed, to determine whether the Transfer Agent
is entitled to indemnification hereunder and the reasonable amount of any
indemnity due it hereunder, or employ independent legal counsel for that
purpose.
The provisions contained in Section 8 shall survive the expiration or other
termination of this Agreement, shall be deemed to include and protect the
Transfer Agent and its directors, officers, employees and agents and shall
inure to the benefit of its/their respective successors, assigns and
personal representatives.
9. Duration and Termination. This Agreement shall be continued effective as of
the date first above written, and shall continue in force and effect for a
period of one year thereafter and shall be continued on its terms from year
to year thereafter unless sooner terminated as permitted herein. This
Agreement may be terminated at any time, without payment of any penalty, by
the Trust or the Transfer Agent upon ninety days' written notice to the
other party.
10. Amendment. This Agreement may be amended by mutual written consent of the
parties. If, at any time during the existence of this Agreement, the Trust
deems it necessary or advisable in the best interests of the Trust that any
amendment of this Agreement be made in order to comply with the
recommendations or requirements of the Securities and Exchange Commission
or state regulatory agencies or other governmental authority, or to obtain
any advantage under state or federal laws, and shall notify the Transfer
Agent of the form of Amendment which it deems necessary or advisable and
the reasons therefor, and if the Transfer Agent declines to assent to such
amendment, the Trust may terminate this Agreement forthwith.
11. Notice. Any notice that is required to be given by the parties to each
other under the terms of this Agreement shall be in writing, addressed or
delivered, or mailed postpaid to the other party at the principal place of
business of such party.
12. Construction. This Agreement shall be governed and enforced in accordance
with the laws of the State of North Carolina. If any provision of this
Agreement, or portion thereof, shall be determined to be void or
unenforceable by any court of competent jurisdiction, then such
determination shall not affect any other provision of this Agreement, or
portion thereof, all of which other provisions and portions thereof shall
remain in full force and effect. If any provision of this Agreement, or
portion thereof, is capable of two interpretations, one of which would
render the provision, or portion thereof, void and the other of which would
render the provision, or portion thereof, valid, then the provision, or
portion thereof, shall have the meaning which renders it valid.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers effective as of the date indicated above.
SCM INVESTMENT TRUST
By: /S/ Dan P. Shanklin (SEAL)
____________________________
NC SHAREHOLDER SERVICES, LLC
By: /s/ John D. Marriott (SEAL)
____________________________
<PAGE>
SHAREHOLDER SERVICING FUNCTIONS
(1) Process new accounts.
(2) Process purchases, both initial and subsequent in accordance with
conditions set forth in the Fund's prospectus.
(3) Transfer shares of capital stock to an existing account or to a new account
upon receipt of required documentation in good order.
(4) Distribute dividends and/or capital gain distributions. This includes
disbursement as cash or reinvestment and to change the disbursement option
at the request of shareholders.
(5) Process exchanges between funds, (process and direct purchase/redemption
and initiate new account or process to existing account).
(6) Make miscellaneous changes to records, including, but not necessarily
limited to, address changes and changes in plans (such as systematic
withdrawal, dividend reinvestment, etc.).
(7) Prepare and mail a year-to-date confirmation and statement as each
transaction is recorded in a shareholder account as follows: original to
shareholder. Duplicate confirmations to be available on request within
current year.
(8) Handle telephone calls and correspondence in reply to shareholder requests
except those items otherwise set forth herein.
(9) Daily control and reconciliation of Fund shares.
(10) Prepare address labels or confirmations for four reports to shareholders
per year.
(11) Mail and tabulate proxies for one Meeting of Shareholders annually,
including preparation of certified shareholder list and daily report to
Fund management, if required.
(12) Prepare and mail annual Form 1099, Form W-2P and 5498 to shareholders to
whom dividends or distributions are paid, with a copy for the IRS.
(13) Provide readily obtainable data which may from time to time be requested
for audit purposes.
(14) Replace lost or destroyed checks.
(15) Continuously maintain all records for active and closed accounts according
to the Investment Company Act of 1940 and regulations provided thereunder.
(16) Furnish shareholder data information for a current calendar year in
connection with IRA and Keogh Plans in a format suitable for mailing to
shareholders.
<PAGE>
TRANSFER AGENT'S COMPENSATION SCHEDULE
For the services delineated in the DIVIDEND DISBURSING AND TRANSFER AGENT
AGREEMENT, the Transfer Agent shall be compensated monthly, as of the last day
of each month, within five business days of the month end, a fee calculated
based upon 1/12 of the annual fee calculated using the then current number of
shareholders:
Shareholder servicing fee
-------------------------
$15.00 per shareholder per year; minimum fee of $750 per month
Exhibit (h)(3): Expense Limitaton Agreement
---------------
EXPENSE LIMITATION AGREEMENT
SCM INVESTMENT TRUST
EXPENSE LIMITATION AGREEMENT, effective as of May 31, 1999, by and
between Shanklin Capital Management, Inc. (the "Advisor") and SCM Investment
Trust (the "Trust"), on behalf of each series of the Trust set forth in Schedule
A attached hereto (each a "Fund," and collectively, the "Funds").
WHEREAS, the Trust is a Massachusetts business trust organized under
the Agreement and Declaration of Trust ("Declaration of Trust"), and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management company of the series type, and each Fund is a
series of the Trust; and
WHEREAS, the Trust and the Advisor have entered into an Investment
Advisory Agreement dated June 26, 1998 ("Advisory Agreement"), pursuant to which
the Advisor provides investment advisory services to each Fund listed in
Schedule A, which may be amended from time to time, for compensation based on
the value of the average daily net assets of each such Fund; and
WHEREAS, the Trust and the Advisor have determined that it is
appropriate and in the best interests of each Fund and its shareholders to
maintain the expenses of each Fund, and, therefore, have entered into this
Expense Limitation Agreement, in order to maintain each Fund's expense ratios at
the levels specified Schedule A attached hereto; and
NOW THEREFORE, the parties hereto agree that the Expense Limitation
Agreement provides as follows:
1. Expense Limitation.
1.1. Applicable Expense Limit. To the extent that the aggregate
expenses of every character incurred by a Fund in any fiscal year, including but
not limited to investment advisory fees of the Advisor (but excluding interest,
taxes, brokerage commissions, other expenditures which are capitalized in
accordance with generally accepted accounting principles, other extraordinary
expenses not incurred in the ordinary course of such Fund's business, and
amounts, if any, payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act) ("Fund Operating Expenses"), exceed the Operating
Expense Limit, as defined in Section 1.2 below, such excess amount (the "Excess
Amount") shall be the liability of the Advisor.
1.2. Operating Expense Limit. The maximum Operating Expense Limit in
any year with respect to each Fund shall be the amount specified in Schedule A
based on a percentage of the average daily net assets of each Fund.
1.3. Method of Computation. To determine the Advisor's liability with
respect to the Excess Amount, each month the Fund Operating Expenses for each
Fund shall be annualized as of the last day of the month. If the annualized Fund
Operating Expenses for any month of a Fund exceed the Operating Expense Limit of
such Fund, the Advisor shall first waive or reduce its investment advisory fee
for such month by an amount sufficient to reduce the annualized Fund Operating
Expenses to an amount no higher than the Operating Expense Limit. If the amount
of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Advisor may also remit to the
appropriate Fund or Funds an amount that, together with the waived or reduced
investment advisory fee, is sufficient to pay such Excess Amount.
<PAGE>
1.4. Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the investment advisory fees
waived or reduced and other payments remitted by the Advisor to the Fund or
Funds with respect to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1. Reimbursement. If in any year during which the total assets of a
Fund are greater than $20 million and in which the Advisory Agreement is still
in effect, the estimated aggregate Fund Operating Expenses of such Fund for the
fiscal year are less than the Operating Expense Limit for that year, subject to
quarterly approval by the Trust's Board of Trustees as provided in Section 2.2
below, the Advisor shall be entitled to reimbursement by such Fund, in whole or
in part as provided below, of the investment advisory fees waived or reduced and
other payments remitted by the Advisor to such Fund pursuant to Section 1
hereof. The total amount of reimbursement to which the Advisor may be entitled
(the "Reimbursement Amount") shall equal, at any time, the sum of all investment
advisory fees previously waived or reduced by the Advisor and all other payments
remitted by the Advisor to the Fund, pursuant to Section 1 hereof, during any of
the previous five (5) fiscal years, less any reimbursement previously paid by
such Fund to the Advisor, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2. Board Approval. No reimbursement shall be paid to the Advisor with
respect to any Fund pursuant to this provision in any fiscal quarter, unless the
Trust's Board of Trustees has determined that the payment of such reimbursement
is in the best interests of such Fund and its shareholders. The Trust's Board of
Trustees shall determine quarterly in advance whether any reimbursement may be
paid to the Advisor with respect to any Fund in such quarter.
2.3. Method of Computation. To determine each Fund's payments, if any,
to reimburse the Advisor for the Reimbursement Amount, each month the Fund
Operating Expenses of each Fund shall be annualized as of the last day of the
month. If the annualized Fund Operating Expenses of a Fund for any month are
less than the Operating Expense Limit of such Fund, such Fund, only with the
prior approval of the Trust's Board of Trustees, shall pay to the Advisor an
amount sufficient to increase the annualized Fund Operating Expenses of that
Fund to an amount no greater than the Operating Expense Limit of that Fund,
provided that such amount paid to the Advisor will in no event exceed the total
Reimbursement Amount.
2.4. Year-End Adjustment. If necessary, on or before the last day of
the first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Fund Operating Expenses of a Fund for
the prior fiscal year (including any reimbursement payments hereunder with
respect to such fiscal year) do not exceed the Operating Expense Limit.
<PAGE>
3. Term and Termination of Agreement.
This Agreement with respect to the Funds shall continue in effect on
May 31, 1999, and from year to year thereafter provided each such continuance is
specifically approved by a majority of the Trustees of the Trust who (i) are not
"interested persons" of the Trust or any other party to this Agreement, as
defined in the 1940 Act, and (ii) have no direct or indirect financial interest
in the operation of this Agreement ("Non-Interested Trustees"). Nevertheless,
this Agreement may be terminated by either party hereto, without payment of any
penalty, upon ninety (90) days' prior written notice to the other party at its
principal place of business; provided that, in the case of termination by the
Trust, such action shall be authorized by resolution of a majority of the
Non-Interested Trustees of the Trust or by a vote of a majority of the
outstanding voting securities of the Trust.
4. Miscellaneous.
4.1. Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2. Interpretation. Nothing herein contained shall be deemed to
require the Trust or the Funds to take any action contrary to the Trust's
Declaration of Trust or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Trust's Board of Trustees of its responsibility for and control of
the conduct of the affairs of the Trust or the Funds.
4.3. Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
SCM INVESTMENT TRUST
ON BEHALF OF EACH OF ITS SERIES LISTED IN SCHEDULE A
By: /s/ Michael A. Farris
_________________________
SHANKLIN CAPITAL MANAGEMENT, INC.
By: /s/ Dan P. Shanklin
__________________________
<PAGE>
SCHEDULE A
OPERATING EXPENSE LIMITS
This Agreement relates to the following Funds of the Trust:
Maximum
Operating
Name of Fund Expense Limit
------------ -------------
SCM Strategic Growth Fund 1.25%
Exhibit (i)(2): Consent of Dechert Price & Rhoads
---------------
[Letterhead]
Law Offices of
DECHERT PRICE & RHOADS
1775 Eye St., N.W.
Washington, DC 20006-2401
Telephone: (202)261-3300
FAX: (202)261-3333
July 30, 1999
SCM Investment Trust
105 North Washington Street
Post Office Box 69
Rocky Mount, NC 27802-0069
Re: Post-Effective Amendment No. 1 to Registration Statement on
Form N-1A for SCM Investment Trust ("Trust") on behalf of
the SCM Strategic Growth Fund ("Fund") (File Nos. 333-49831
and 811-08745)
------------------------------------------------------------
Dear Sirs and Madams:
We hereby consent to the reference to our firm as counsel to the Trust
and the Fund in the Statement of Additional Information contained in the
Post-Effective Amendment No. 1 to the Trust's Registration Statement.
Very truly yours,
/s/ Dechert Price & Rhoads
Dechert Price & Rhoads
Exhibit (j): Consent of Deloitte & Touche LLP
------------
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees of SCM Investment Trust and Shareholders of SCM
Strategic Growth Fund:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 to Registration Statement No. 333-49831 of SCM Strategic Growth Fund of
our report dated June 18, 1999, appearing in the Annual Report for the period
ended May 31, 1999, and to the reference to us under the heading "Financial
Highlights" in the Prospectus, which is part of such Registration Statement.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
July 28, 1999
Exhibit (l): Initial Stock Subscription Agreement
------------
SUBSCRIPTION LETTER
Board of Trustees
Shanklin Investment Trust
105 North Washington Street
Rocky Mount, North Carolina 27802-0069
Gentlemen:
This letter will serve to advise you that Shanklin Capital Management, Inc.
("SCM") hereby subscribes for the purchase of the initial organizational shares
of the SCM Strategic Growth Fund (the "Fund") in the amount of $10.00 per share,
for an aggregate investment of $100,000, and agrees to advance all registration
and organization costs of the Fund to the Trust upon the Trust's demand. In
connection with its subscription for shares of the Fund, SCM acknowledges that
the shares have not been registered under federal or state securities laws an
that the transfer of such shares is restricted. SCM further represents that it
is acquiring such shares for investment purposes and without any intention to
redeem or dispose of such shares. Payment for such shares shall be made in cash
prior to the effective date of the Trust's Registration Statement with the SEC
with respect to the Fund. As initial subscriber for shares, SCM hereby approves
the actions of the Trust in the organization of the Fund, including the approval
of the Investment Advisory Agreement, Fund Accounting and Compliance
Administration Agreement, Dividend Disbursing and Transfer Agent Agreement, and
Distribution Agreement.
If the terms and conditions as stated herein are acceptable to the Board of
Trustees, please so signify by having an authorized officer or trustee sign a
copy of this letter.
Very truly yours,
Date: April 8, 1998 SHANKLIN CAPITAL MANAGEMENT, INC.
By: /S/ Tim L. Shanklin
________________________________
Title: President
______________________________
Accepted this 8th day of April, 1998.
SHANKLIN INVESTMENT TRUST
By: /s/ Dan P. Shanklin
_________________________________
Title: Chairman
______________________________
Exhibit (m): Distribution Plan under Rule 12b-1
------------
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
WHEREAS, SCM Investment Trust, an unincorporated business trust organized and
existing under the laws of the Commonwealth of Massachusetts (the "Trust"),
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares of
beneficial interest (the "Shares"), in separate series representing the
interests in separate funds of securities and other assets; and
WHEREAS, the Trust offers a series of such Shares representing interests in the
SCM STRATEGIC GROWTH FUND (the "Fund") of the Trust;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Non-Interested Trustees"), having determined, in
the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Section 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that this Plan will benefit the Trust and its
shareholders, have approved this Plan by votes cast at a meeting called for the
purpose of voting hereon and on any agreements related hereto; and
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with Rule 12b-1
under the 1940 Act, on the following terms and conditions:
1. Distribution and Servicing Activities. Subject to the supervision of the
Trustees of the Trust, the Trust may, directly or indirectly, engage in any
activities primarily intended to result in the sale of the Fund, which
activities may include, but are not limited to, the following: (a) payments to
the Trust's Distributor and to securities dealers and others in respect of the
sale of the Fund; (b) payment of compensation to and expenses of personnel
(including personnel of organizations with which the Trust has entered into
agreements related to this Plan) who engage in or support distribution of the
Fund or who render shareholder support services not otherwise provided by the
Trust's transfer agent, administrator, or custodian, including but not limited
to, answering inquiries regarding the Trust, processing shareholder
transactions, providing personal services and/or the maintenance of shareholder
accounts, providing other shareholder liaison services, responding to
shareholder inquiries, providing information on shareholder investments in the
Fund, and providing such other shareholder services as the Trust may reasonably
request; (c) formulation and implementation of marketing and promotional
activities, including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising; (d)
preparation, printing and distribution of sales literature; (e) preparation,
printing and distribution of prospectuses and statements of additional
information and reports of the Trust for recipients other than existing
shareholders of the Trust; and (f) obtaining such information, analyses and
reports with respect to marketing and promotional activities as the Trust may,
from time to time, deem advisable. The Trust is authorized to engage in the
activities listed above, and in any other activities primarily intended to
result in the sale of the Fund, either directly or through other persons with
which the Trust has entered into agreements related to this Plan.
2. Maximum Expenditures. The expenditures to be made by the Trust pursuant
to this Plan and the basis upon which payment of such expenditures will be made
shall be determined by the Trustees of the Trust, but in no event may such
expenditures exceed an amount calculated at the rate of 0.25% per annum of the
average daily net asset value of the Fund for each year or portion thereof
included in the period for which the computation is being made, elapsed since
the inception of this Plan to the date of such expenditures. Notwithstanding the
foregoing, in no event may such expenditures paid by the Trust as service fees
exceed an amount calculated at the rate of 0.25% of the average annual net
assets of the Fund, nor may such expenditures paid as service fees to any person
who sells the Fund exceed an amount calculated at the rate of 0.25% of the
average annual net asset value of such shares. Such payments for distribution
and shareholder servicing activities may be made directly by the Trust or to
other persons with which the Trust has entered into agreements related to this
Plan.
3. Term and Termination. (a) This Plan shall become effective as of June
18, 1998. Unless terminated as herein provided, this Plan shall continue in
effect for one year from the date hereof and shall continue in effect for
successive periods of one year thereafter, but only so long as each such
continuance is specifically approved by votes of a majority of both (i) the
Trustees of the Trust and (ii) the Non-Interested Trustees, cast at a meeting
called for the purpose of voting on such approval.
(b) This Plan may be terminated at any time with respect to the Fund by a
vote of a majority of the Non-Interested Trustees or by a vote of a
majority of the outstanding voting securities of the Fund as defined
in the 1940 Act.
4. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 2 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities of the
Fund as defined in the 1940 Act with respect to which a material increase in the
amount of expenditures is proposed, and no material amendment to this Plan shall
be made unless approved in the manner provided for annual renewal of this Plan
in Section 3(a) hereof.
5. Selection and Nomination of Trustees. While this Plan is in effect, the
selection and nomination of the Non-Interested Trustees of the Trust shall be
committed to the discretion of such Non-Interested Trustees.
6. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review quarterly a written report
of the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
7. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 6 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
8. Limitation of Liability. Any obligations of the Trust hereunder shall
not be binding upon any of the Trustees, officers or shareholders of the Trust
personally, but shall bind only the assets and property of the Trust. The term
"SCM Investment Trust" means and refers to the Trustees from time to time
serving under the Agreement and Declaration of Trust of the Trust, a copy of
which is on file with the Secretary of The Commonwealth of Massachusetts. The
execution of this Plan has been authorized by the Trustees, and this Plan has
been signed on behalf of the Trust by an authorized officer of the Trust, acting
as such and not individually, and neither such authorization by such Trustees
nor such execution by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Trust as provided in the
Agreement and Declaration of Trust.
*
*
*
*
*
*
*
IN WITNESS THEREOF, the parties hereto have caused this Plan to be executed as
of the date written above.
SCM INVESTMENT TRUST
By: /S/ Dan P. Shanklin
__________________________________
SCM STRATEGIC GROWTH FUND
By: /s/ Tim L. Shanklin
__________________________________
